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Toronto is a bellwether for commercial real estate trends in 2014


According to CBRE Limited, Toronto can be seen as a microcosm for many of the emerging trends that are shaping commercial real estate across Canada and around the world. With seven new downtown office towers under construction and 50 per cent of all retail space being built nationally located in Toronto, there is no doubt that Toronto remains the epicentre of commercial real estate in this country.

“People are paying close attention to events in our city. Major trends like new workplace strategies and the evolution of the retail market are playing out in Toronto on a larger scale than anywhere else in the country,” said John O’Toole, CBRE executive vice president and executive managing director in the 2014 Canadian Market Outlook for commercial real estate report. “In 2014, we could get a better idea of how these trends are going to manifest themselves in the years ahead.”

In particular, office tenants are increasingly turning to new workplace strategies and technologies to optimize their real estate and improve employee performance. This is one of the reasons why 174,958 square feet of downtown office space was returned to the market in 2013. While tenants are pursuing quality office space by preleasing 54.1 per cent of the 5.1 million square feet of new downtown office space under construction, many tenants are also reducing their footprint as a result of newfound efficiencies.

“This is not a Toronto phenomenon; however, the city is in the midst of a significant construction cycle so we are going to be living through these changes at a unique moment in time,” noted O’Toole. “The push for floor plate efficiency will have implications for both the office towers being built and for the space in existing buildings that is being vacated in favour of the new towers. The hope is that a growing economy will ultimately produce demand for a wide range of office space in the future.”

Toronto is also at the forefront as Canada continues to experience an influx of foreign retailers and significant retail construction. Toronto ranked in the top tier of cities in terms of its attractiveness to foreign retailers in 2013. Expectations are that this appeal will be maintained in 2014. With high-end U.S. retailers like Nordstrom and Saks Fifth Avenue setting up shop in the next few years, big-anchor indoor mall concepts continue to garner significant attention from prospective tenants and investors alike.

“Never before in Canadian retail history has the department store segment been the subject of so much focus or been so heavily contested – Toronto is at the forefront of this activity,” says Tom Balkos, senior vice president and a Canadian Director of the Retail Services Group. “The level of demand and investment in building out retail properties indicates that despite significant growth in online shopping, bricks and mortar retail will endure and likely flourish.”

Around the world, all levels of government are discussing the need to maintain and improve infrastructure, including public transportation. In the year ahead, Toronto is going to increasingly feel the impact of large infrastructure investments, including the revitalization of Union Station. This project will improve the flow of people in and out of the core, which will support economic growth and demand for new office space that will be delivered in the years ahead.

“The trend of office tenants moving downtown has been underway for some time. Projects like an improved Union Station, along with other public transportation enhancements, could entice U.S. companies, which are suburban tenants traditionally, to move downtown,” said O’Toole.

Many important decisions still need to be made in terms of public transportation, and all eyes will be on Metrolinx in 2014. The direction set by this provincial agency will have implications for all types of commercial real estate, but it will be especially relevant to the industrial market. Metrolinx will have the single largest impact on the way the GTA functions as it creates more routes for the transportation of goods. In the meantime, the industrial market in the Greater Toronto Area is expected to have low vacancy and increasing demand in 2014 as a result of an improving U.S. economy.

O’Toole concluded: “Commercial real estate is a cyclical industry, but Toronto is certainly in one of the more dynamic periods in recent memory. 2014 is going to provide us with a better idea of how different property types will fare in the years ahead as emerging trends become more established. Look for Toronto to point the way for commercial real estate elsewhere in Canada.”




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