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http://www.theglobeandmail.com/servlet/story/LAC.20080617.BARBER17/TPStory/National/HYOntario

Did someone say the R word? Not in Toronto

JOHN BARBER

jbarber@globeandmail.com

E-mail John Barber | Read Bio | Latest Columns
June 17, 2008

Is Toronto recession-proof? Judging by the well-publicized agonies Central Canada is now going through - the so-called Dutch disease made feverish by $140-a-barrel oil, compounded by endless global financial crises - it might seem rash even to suggest such a thing. But so far, it's true.

Every developer fears the worst. In the meantime, they are all scrambling to meet insistent demand for new places to work and live.

The vacancy rate for top-quality downtown office space "went into freefall" in the first quarter of 2008, according to Cushman & Wakefield Lepage, dragging down vacancy rates for all kinds of commercial space in central Toronto.

Rental rates rose correspondingly: Companies scrambling to find a good address in the financial core drove up rents by the annual equivalent of 14 per cent in the first three months of this year, according to Cushman, leasing almost one million square feet of space over the same time.

That's why so many new office buildings are going up downtown, with 3.4 million square feet - the equivalent of the entire Toronto-Dominion Centre - coming to market next year. If the captains of Canadian commerce are concerned about the disappearance of Canadian manufacturing, they're doing their best to hide it. Locally, it appears to be a non-issue.

One reason is that manufacturing already left the city, with a giant sucking sound, after the advent of free trade in the 1990s. A recession that the rest of the country barely noticed brought Toronto to its knees, wiping out an incredible 200,000 jobs. Local employment has still not reached the level it attained in 1989, but the theory is that the newer jobs that have appeared since then are better adapted to the global economy.

Any manufacturing jobs that haven't left Toronto already, must have a good reason to stay. In the meantime, high-value service industries are all but booming.

It's safe to say that few if any experts expect that to continue as global financial losses mount. But there is some hope that the consequences will be much less severe locally than elsewhere in the so-called heartland. Although no city is an island, some are more securely connected than others.

Ontarians may wail about being victimized by an overvalued "petro-dollar," but Bay Street doesn't mind. The Toronto Stock Exchange is heavily weighted in favour of resource stocks, boasting that it and its junior affiliate list more oil and gas companies than any other exchange in the world. Mining finance is another Toronto specialty that is thriving in the era of high commodity prices. What's bad for General Motors continues to be a source of considerable wealth for local Porsche dealers.

In that context, Toronto is closer to Alberta than Oshawa. As for a Florida-style housing crash, that's further away than either. The border might as well be an iron curtain when it comes to real-estate value. Although the local market is softening, rampant new construction shows little sign of abating.

You could have said the same thing in 1990 as the city economy soared over an unforeseen cliff. People forget that the Bob Rae government inherited a balanced budget. Things change fast. For the time being, however, rose-coloured glasses are indicated.
 

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