Toronto City Hall

Finger on the Pulse: Toronto’s Hot CRE Market

Two Toronto experts joined the NAIOP Board of Directors at Commercial Real Estate Conference 2015 to provide a deep look into what’s happening in the booming region of Greater Toronto. George Carras, president of RealNet Canada Inc., and Colin Johnston, president, Research, Valuation & Advisory with Altus Group, provided the Board with an insider’s view of the Toronto CRE market, demographic and societal trends driving the market and future development and investment opportunities.

Toronto is a heavily integrated real estate marketplace. Residential, retail, office and more are no longer isolated. So what’s happening here and why is the region on fire? Read on for the fine details of what was shared.

There are 2.6 million people in Toronto, with 6 million in the Greater Toronto area. The Greater Golden Horseshoe that surrounds the GTA is home to 9 million — that’s a huge percentage of the 35 million people in all of Canada. One out of four Canadians live in this region.

What does that mean? INTENSIFICATION. At the pace the GTA is growing, the equivalent of the population of Houston will be coming into the area in the next few years.

That intensification has driven the shift from low-rise (townhomes and single family homes) to the surge of high-rise condos. The scarcity of low-rise home supply has resulted in massive crowds when inventory does become available. Last February — Toronto’s coldest on record — heaps of would-be home buyers camped out two nights in the freezing cold to have first crack at a new residential development more than 30 minutes outside of the city.

Take note: where does the land for new residential development come from? It comes out of the stock of commercial real estate land. This is where commercial and residential are colliding.

QOTD: “There’s a fine line between mixed-use development and mixed-up development.” Residential developers often drive the mixed-use, without a solid understanding of retail and office requirements.

Vacancy rates overall are steady at 9.9 percent, which is lower than Vancouver and Montreal. Office space per capita is 30.3 square foot (compared to Calgary’s 51.5 square feet). Toronto boasts 5.4 million square feet under development.

Target’s departure from the Canadian marketplace had a big impact on retail. Target had 15 million square feet — that’s 3 percent of the entire retail real estate market. Other big profile retail departures are Nine West, Sony, Big Lots, and Jones New York, among others, which has resulted in some calling it the weakest retail leasing time in recent history.

What’s under retail development? Power Centers, regional malls (thanks to an infusement of pension mall investment), and mixed-use development. Nineteen percent of all development is mixed-use.

The industrial markets have been strong. Two cities drive industrial in Canada: Toronto and Montreal. These two comprise upwards of 65 percent of the industrial markets in the country. The weaker Canadian dollar, meanwhile, has yielded more exporting.

Cap flows into residential land trades was $1 billion in the second quarter — that is a record! This is a huge rally from Q113, when it experienced a big dip.

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