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New Toronto office towers on horizon
Large blocks of office space in short supply
By David Hatton - Business Edge
Published: 01/19/2006 - Vol. 2, No. 2
Commercial and industrial real estate markets will continue to be a hot topic across the country this year as vacancy rates tighten and rents rise, according to experts.
"All of Canada is a very hot investment market right now," says Michael Brooks, executive director of the Toronto-based Real Property Association of Canada, an industry association for large-scale owners of commercial real estate. "You have bidders lining up five to 10 deep for practically any property of any size out there."
Brooks says large-scale tenants are the biggest part of the market, with big blocks of space becoming scarce.
"The most interesting part of this is really hidden from the general public," he says. "It's an extremely competitive market. You have landlords who are approaching tenants who have their leases coming up within the next year and offering them all kinds of incentives to lock in for the next five to eight years. That would put them safely past the lead time it would take to put up any new building."
Michael Brooks
Observers say Toronto's skyline is set to change in the next year or two with two major office buildings proposed. Another major developer expects to announce a third project within the next few months.
If completed, they would be the first large office buildings built in the downtown core in the past decade.
"They are all trying to pursue the same group of tenants, either within their current base or new ones they hope to bring into the fold," Brooks says. "There are some large tenants, typically law firms, who are running out of space in their current location.
"It becomes a zero-sum game, but if developers can offer them another building with more space, at least they can keep the tenants in their existing portfolio."
The first big announcement came in September when Cadillac Fairview Corp. Ltd. announced plans to build a $400-million 48-storey office tower on Wellington Street, just west of King and Bay streets.
It would be beside the proposed 53-storey $325-million Ritz-Carlton Hotel and Residences, a joint venture between Ritz-Carlton, Graywood Developments and Cadillac Fairview.
Cadillac Fairview spokesman Neil Murphy says plans are moving ahead and the company is talking to several potential anchor tenants, although he declined to say how many or how close they were to closing a deal. "We don't get into predictions about what might happen," he says. "This is a very competitive market, but we feel there is still a lot of potential."
The second major announcement in the downtown core last year was from Menkes Developments Ltd. at 25 York St., near the Air Canada Centre and proposed Maple Leaf Square condo development. A Menkes representative declined to answer questions about the project.
Melissa Coley, vice-president of investor relations and communications for Brookfield Properties, confirms the company is in discussions with prospective anchor tenants for the third project at Bay and Adelaide streets.
"Things are certainly moving forward," she said in a telephone interview from New York. "There hasn't been any official announcement on that yet. We don't usually discuss the progress of negotiations, but there is a great deal of interest in that property."
Lesley Yule, director of research at J.J. Barnicke Ltd. in Toronto, points out the proposed office towers may not all get built. The Bay-Adelaide Centre project has been on hold for years, with only the below-grade parking garage and foundation completed before work stopped.
"It's not like they've broken ground yet," she says. "These projects would not go ahead without tenants signed. The key is to find those larger tenants and that's what everyone is scrambling to do. Nobody knows exactly how many companies are looking right now."
Yule says rents and vacancy rates are starting to return to levels seen in the dot-com craze of 2000. "Rents will vary on a submarket basis across the Greater Toronto Area or even Canada for that matter. As vacancies continue to decrease this year, then we predict rental rates will get pushed slightly higher."
J.J. Barnicke research has shown gross rents for an A-class office building in Toronto range from $26.19 per sq. ft. in the Don Mills Road and Eglinton Avenue area to $51.28 in the downtown core.
Just outside of Toronto, in places such as Brampton, the average rent per square foot is $24.
Yule says it's "anybody's guess" which of the three projects will go ahead, but notes Menkes has had good success with a building it built in North York at 5000 Yonge St. The two other players downtown - Cadillac Fairview and Brookfield - also have strong reputations, she adds.
A J.J. Barnicke global research report released this month says office construction activity increased 75 per cent in 2005, with more than seven million sq. ft. under way, two-thirds of that in downtown markets. The Toronto area represents about half of the Canadian office market.
The report identified Ottawa as another Ontario hotspot, with more than 1.2 million sq. ft. of development under construction.
Dell Computers, Abbott Point of Care and Arvato Services Canada have all expanded to the Ottawa market in the past year, putting pressure on large blocks of vacant space.
Competition for space in the industrial sector is also becoming fierce, with some companies forced to go outside Toronto if they want affordable space, says Ron Ridsdill, chairman of the Toronto Real Estate Board's commercial division.
He adds that cities such as Mississauga also are becoming overcrowded.
"You've got places as far away as Brantford becoming popular because of their affordable land, taxes and proximity to major highways. Companies haven't got a hope of expanding in the GTA if they want any large amounts of space. It's gotten crazy," Ridsdill says.
Greater Toronto Area
Population, 5.4 million
Office Inventory, 121.9 million sq. ft.
Office Vacancy, 10.7 per cent
Class ‘A’ Vacancy, 7.9 per cent
Industrial Inventory, 687 million sq. ft.
Industrial Vacancy, 5.2 per cent
Source: J.J. Barnicke Global Views 2006 report
(David Hatton can be reached at hatton@businessedge.ca)
New Toronto office towers on horizon
Large blocks of office space in short supply
By David Hatton - Business Edge
Published: 01/19/2006 - Vol. 2, No. 2
Commercial and industrial real estate markets will continue to be a hot topic across the country this year as vacancy rates tighten and rents rise, according to experts.
"All of Canada is a very hot investment market right now," says Michael Brooks, executive director of the Toronto-based Real Property Association of Canada, an industry association for large-scale owners of commercial real estate. "You have bidders lining up five to 10 deep for practically any property of any size out there."
Brooks says large-scale tenants are the biggest part of the market, with big blocks of space becoming scarce.
"The most interesting part of this is really hidden from the general public," he says. "It's an extremely competitive market. You have landlords who are approaching tenants who have their leases coming up within the next year and offering them all kinds of incentives to lock in for the next five to eight years. That would put them safely past the lead time it would take to put up any new building."
Michael Brooks
Observers say Toronto's skyline is set to change in the next year or two with two major office buildings proposed. Another major developer expects to announce a third project within the next few months.
If completed, they would be the first large office buildings built in the downtown core in the past decade.
"They are all trying to pursue the same group of tenants, either within their current base or new ones they hope to bring into the fold," Brooks says. "There are some large tenants, typically law firms, who are running out of space in their current location.
"It becomes a zero-sum game, but if developers can offer them another building with more space, at least they can keep the tenants in their existing portfolio."
The first big announcement came in September when Cadillac Fairview Corp. Ltd. announced plans to build a $400-million 48-storey office tower on Wellington Street, just west of King and Bay streets.
It would be beside the proposed 53-storey $325-million Ritz-Carlton Hotel and Residences, a joint venture between Ritz-Carlton, Graywood Developments and Cadillac Fairview.
Cadillac Fairview spokesman Neil Murphy says plans are moving ahead and the company is talking to several potential anchor tenants, although he declined to say how many or how close they were to closing a deal. "We don't get into predictions about what might happen," he says. "This is a very competitive market, but we feel there is still a lot of potential."
The second major announcement in the downtown core last year was from Menkes Developments Ltd. at 25 York St., near the Air Canada Centre and proposed Maple Leaf Square condo development. A Menkes representative declined to answer questions about the project.
Melissa Coley, vice-president of investor relations and communications for Brookfield Properties, confirms the company is in discussions with prospective anchor tenants for the third project at Bay and Adelaide streets.
"Things are certainly moving forward," she said in a telephone interview from New York. "There hasn't been any official announcement on that yet. We don't usually discuss the progress of negotiations, but there is a great deal of interest in that property."
Lesley Yule, director of research at J.J. Barnicke Ltd. in Toronto, points out the proposed office towers may not all get built. The Bay-Adelaide Centre project has been on hold for years, with only the below-grade parking garage and foundation completed before work stopped.
"It's not like they've broken ground yet," she says. "These projects would not go ahead without tenants signed. The key is to find those larger tenants and that's what everyone is scrambling to do. Nobody knows exactly how many companies are looking right now."
Yule says rents and vacancy rates are starting to return to levels seen in the dot-com craze of 2000. "Rents will vary on a submarket basis across the Greater Toronto Area or even Canada for that matter. As vacancies continue to decrease this year, then we predict rental rates will get pushed slightly higher."
J.J. Barnicke research has shown gross rents for an A-class office building in Toronto range from $26.19 per sq. ft. in the Don Mills Road and Eglinton Avenue area to $51.28 in the downtown core.
Just outside of Toronto, in places such as Brampton, the average rent per square foot is $24.
Yule says it's "anybody's guess" which of the three projects will go ahead, but notes Menkes has had good success with a building it built in North York at 5000 Yonge St. The two other players downtown - Cadillac Fairview and Brookfield - also have strong reputations, she adds.
A J.J. Barnicke global research report released this month says office construction activity increased 75 per cent in 2005, with more than seven million sq. ft. under way, two-thirds of that in downtown markets. The Toronto area represents about half of the Canadian office market.
The report identified Ottawa as another Ontario hotspot, with more than 1.2 million sq. ft. of development under construction.
Dell Computers, Abbott Point of Care and Arvato Services Canada have all expanded to the Ottawa market in the past year, putting pressure on large blocks of vacant space.
Competition for space in the industrial sector is also becoming fierce, with some companies forced to go outside Toronto if they want affordable space, says Ron Ridsdill, chairman of the Toronto Real Estate Board's commercial division.
He adds that cities such as Mississauga also are becoming overcrowded.
"You've got places as far away as Brantford becoming popular because of their affordable land, taxes and proximity to major highways. Companies haven't got a hope of expanding in the GTA if they want any large amounts of space. It's gotten crazy," Ridsdill says.
Greater Toronto Area
Population, 5.4 million
Office Inventory, 121.9 million sq. ft.
Office Vacancy, 10.7 per cent
Class ‘A’ Vacancy, 7.9 per cent
Industrial Inventory, 687 million sq. ft.
Industrial Vacancy, 5.2 per cent
Source: J.J. Barnicke Global Views 2006 report
(David Hatton can be reached at hatton@businessedge.ca)