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Searching for an apartment to rent in Toronto and Vancouver may require herculean efforts, but a new report from a major commercial real estate firm suggests apartment hunters aren’t the only ones facing stiff rent hikes and competition.
“I predict that rental rates of offices in the major markets will grow significantly over the next three years and by perhaps as much as 50 per cent in the most desirable well located trophy office buildings,” says Brett Miller, CEO of JLL Canada, in a statement.
Like the residential segment, low supply levels and immigration are two of the factors elevating commercial real estate rates in Toronto, Vancouver, Montreal and Calgary, JLL suggests in its new report “Canadian commercial real estate: The substantial rent increases aren’t limited to the residential sector alone.”
What’s more, a large share of office landlords who hold top-class office buildings are conservative investors, says JLL. “[They] will not build without large anchor tenants,” the firm says. This limits supply coming onto the market if investors have trouble locking down large tenants ahead of construction.
Across several big Canadian markets, Toronto stood out in the first quarter of 2017 “as a star performer,” JLL says. The vacancy rate in downtown Toronto, which sits at a 10-year low, portends further strength in the coming quarters.
In the first quarter of 2017, the average asking price for a top-class downtown office lease in Toronto was $59.17 per square foot.
Comparing first-quarter asking rates around North America, Toronto already appears more expensive than Atlanta, New Jersey, Los Angeles, Seattle and Fairfield County, a southern Connecticut region known as a base for hedge funds.
In three year’s time, JLL forecasts it will reach $88.76, which would make it more expensive than New York and Silicon Valley are today in Canadian funds.
“The current environment is the perfect breeding ground for rental growth and allows Toronto to catch up with the major US cities,” the JLL report reads, noting that to a “lesser extent” this is the case for Vancouver, Montreal and Calgary.
Some might find it surprising to see Calgary, a city that was pummelled by the collapse in oil prices, among the other contenders. But JLL expects an oil and gas industry recovery to spur substantial rent gains there, while a host of developments should create favourable conditions on the national scale.
“A strengthening US economy, newly signed bilateral trade agreements with the European Union and China, improved competitiveness of the Canadian dollar, stabilization of oil prices and a highly stimulative fiscal and monetary policy should translate into better growth prospects not only for… Canadian commercial real estate,” JLL says.