A blueprint for commercial success?

Those operating in the commercial sector – and those interested in breaking in – should be directing clients to a specific property type.

A blueprint for commercial success?
Commercial brokers are busy in 2015, but as one recent report reveals, not all real estate in that sector is created equal.

“The attractiveness of renovated warehouse space turned into chic office space is especially high amongst creative agencies and technology companies, who attract younger employees,” said John Arnoldi, Executive Managing Director, Toronto Brokerage, Colliers International in an official release. “Brick and Beam space, primarily found in the Entertainment District and Downtown West, is commanding gross rents in the $40 range, attesting to the appeal of these unique buildings.”

The Toronto market is a story of disparate trends, with Class “A” downtown net rents costing $16-$20 more per square foot and grossing approximately $20-$30 more in rent than space outside the core.

“Despite 2.7 million square feet of office space coming on-stream downtown during the last calendar year, the Greater Toronto Market experienced 432,300 square feet of positive absorption in Q1-2015, occurring primarily in the downtown core,” an official release from Colliers states. “Downtown vacancy rates declined to just 2.7 per cent in Q1 and will likely remain low throughout 2015, because of high demand for space and a limited new supply coming to market.”

This new data arms mortgage brokers with information to better position themselves as expert advisors to property investors. Those buyers are looking for guidance outside of the strict confines of the mortgage transaction as market conditions get tougher to navigate.

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The GTA commercial market continues to be one of the largest commercial sectors in Canada, growing by more than 198.5 million square feet in the first quarter of this year.

Vacancy rates, meanwhile, decreased to 5.3 per cent.

“Beyond downtown, there was minimal movement throughout Toronto as vacancy rates were virtually unchanged in markets located outside the central core,” the release states. “York, Durham, Peel and Halton Region experienced an increase in overall vacancy rate in Q1, and with approximately one million square feet of office space currently under construction within these markets, it is likely that vacancy rates will continue to increase during 2015.”

Overall, the commercial sector is expected to show positive growth for the rest of the year.

Morguard, a North American real estate and property management company, is forecasting a fourth consecutive year of “positive performance” in the commercial sector.

"Investment returns will be largely income-driven, with some investors looking increasingly to new construction as a core strategy," said Keith Reading, director of research at Morguard. "Boosting income performance will be a focus for existing portfolios. Investors have already shown a willingness to move up the risk ladder in sourcing value-add opportunities to achieve their investment objectives."