Toronto has plans to add more prime office space in 2014. Developers will be taking advantage of low borrowing costs to meet the demand from major companies like Google. The plans call for more than 1.59 million square feet of “AAA” space to be added to the city next year, according to real estate brokerage Cushman & Wakefield Inc.
This figure puts Canada’s largest city ahead of New York in terms of office space added over the course of the year. Only Mexico City will be adding more office space in 2014.
Real estate investment trusts and pension funds are helping to fund development in the city and borrowing costs a full two percentage points below 2007 rates is encouraging for anyone seeking acquisitions.
According to real estate data firm RealNet Canada Inc., a group of pension funds paid $749.00 per square foot for the Bookfield Place-TD Canada Trust Tower in December. The selling price was a Canadian record.
Commercial real estate prices have been on the rise in the Toronto market. Companies are tapping into an urban workforce that is living in the 51 condominiums built since 2009.
Toronto currently has more high rises under construction than any other city on the planet. It’s also home to the country’s five largest lenders and has the distinction of being the second-largest financial services center in North America. (New York is the largest).
Lower borrowing costs mean that Canada’s REITs and pension funds are buying and financing the development of commercial real estate. H&R REIT and Dundee REIT bought Scotia Plaza, the country’s second-tallest office building, from Bank of Nova Scotia for a record purchase price of $1.27 billion in May.
The transaction was partially financed with a $650 million 3.45 per cent seven-year mortgage bond. Dundee raised $300 million in an equity offering. An additional $5.12 billion was raised by REITs in 51 initial public offerings and secondary sales in Canada in 2011.
The most expensive transactions closed in Toronto’s south core. The Standard Life Tower located at 121 King Street West was sold for $306 million. The RBC Centre changed hands for $300 million.
The area south of the financial district is a whole “live, work, play environment,” according to Peter Menkes, the president of the commercial and industrial division of Menkes Development Ltd. The developer is part owner of One York, a $375 million dollar building in the area.
The country’s banking sector continues to be healthy, and it accounts for 26 per cent of total tenants. The communications industry, which includes Google Canada’s marketing team, accounted for 16 per cent of total tenants in the city over the past three years, according to figures supplied by Cushman & Wakefield. Google Canada and Coca-Cola Co. are among the companies expected to move closer to the downtown core.
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