Two major Canadian markets have white-hot commercial sectors
Toronto’s commercial real estate sector is on fire.
According to Altus Group’s Ray Wong, vice president of data operations, companies are headquartering in downtown Toronto en masse because it helps them recruit talent, and this presents mortgage brokers with a golden opportunity.
“Mortgage brokers are probably benefiting from increased business and the sales that are are increasing in larger markets,” said Wong. “There’s an opportunity for them to fund those types of financing or loans for, especially, the private and institutional investors.
“I would imagine that from a mortgage broker’s perspective, with the amount of activity in the GTA, there should be a lot of business for them with their clients to finance business opportunities and acquisitions.”
The well isn’t likely to dry up, either. As investments continues flooding into the city’s commercial space from both domestic and foreign investors, there’s nary an indication that the thriving sector will come to a halt anytime soon.
“You’re seeing a lot of foreign investors look at the Canadian market from stability, economic and political standpoints, as well as the amount of talented workers,” said Wong. “So you’d think there would be a sustainable opportunity for mortgage brokers to do new business with new loans.”
The biggest drivers of commercial real estate tenancy are technology and financial services companies. The latter is, in particular, are enlarging their IT departments and fintech capabilities.
“Right now, the employees want to be in the downtown area, close to shops and shops and have that downtown experience,” said Wong. “It’s reflective of the workers, and companies are following where the workers are. It’s not just a Toronto phenomenon; urban markets in North America are experiencing the same thing. Vancouver is similar with a very low office vacancy rate in downtown, and the same pattern is in Montreal.”
North America-wide, New York, San Francisco and Seattle have experienced booming office tenancy rates in the last five years, but Toronto and Vancouver have really taken off in the last 24 months.
“There’s a lot of demand for space and the vacancy rate is dropping because of the new office stock being completed in Vancouver and Toronto, and it’s pushing rents a little higher,” said Wong.
According to Altus, 2017 set a record for investment in the city’s commercial market, and in juxtaposing the first half of 2017 with this year, 2018 is on pace for another record year.
“But the challenge we have in this market is not availability of investors or capital, it’s the amount of product that is available for sale,” said Wong. “Especially with the new owners that are doing very well with their real estate, it’s very difficult for them to sell and figure out what other investments will result in similar yields or returns.”