The pipeline of office developments in Canada reached 20.7 million square feet in the second quarter, according to JLL, the highest level in this cycle but still below the peak of 23.1 million in 2014.
More than 10 million square feet of office development activity is taking place in downtown Toronto, with most of the balance in Vancouver and Montreal.
JLL is tracking 54 office developments comprising more than 8.4 million square feet which are scheduled for completion in the next 18 months. Of that space, 61.1 per cent is pre-leased.
Here’s a closer look at what to expect in the office markets in some of Canada’s biggest cities:
Total pre-leasing across all office developments stands at 75.9 per cent a year out from the completion of the next substantial delivery to downtown, according to the report. Tenants will have to look further and further ahead to secure their ideal space.
“Paper is being traded on most backfill space before it hits the market because that is how creative tenants have to be in a market like this,” said JLL research analyst Julian Lo. “For all these trends we’re seeing in the market, it’s hard not to imagine downtown Toronto remaining a landlord’s market, even after this development cycle.”
All of the new buildings which will be coming online, in addition to what’s already been built over the past several years, are a clear sign Toronto has reached a higher level on the world stage. Both domestic and international firms are either expanding or reinvesting in their presence in the city.
“Some developments will transform specific neighbourhoods by driving retail, residential and infrastructure development, like in Liberty Village, the east end or, most notably, our waterfront,” said Lo.
Suburban Greater Toronto Area
There are 471,470 square feet of office space under construction in Toronto West, 243,301 square feet in Toronto North and none in Toronto East.
“Only 40 per cent of new construction has been pre-leased and no new projects are expected to break ground in the coming quarters,” said JLL research analyst Shivani Garg. “As is common for the suburbs, there are many proposed projects sitting idle and developers are still looking for anchor tenants.”
The suburban office vacancy rate is 11.7 per cent. It’s been on a downward trend since 2016 and the report says that’s expected to continue as a number of large tenants will take occupancy of their new spaces in the next six to 12 months.
“The suburban market is experiencing a relatively subdued development cycle, which is a positive factor,” said Garg. “These factors will likely keep suburban vacancy on its downward trajectory and support rental growth in the coming quarters as the suburbs stabilize.”
There’s 5.37 million square feet of office space under construction in Metro Vancouver, according to the report. Approximately 3.5 million square feet is in downtown Vancouver and 51.9 per cent of that has already been leased or sold.
“This next wave of office space will allow us to meet the demand and allow further growth,” said JLL research analyst Adam Davison.
“We are seeing significant development downtown, but also in suburban areas that are connected to transit: Metrotown, False Creek Flats, Richmond, et cetera. Office development that is not located near transit is very rare these days.”
The Montreal office market is experiencing a building boom with 3.19 million square feet under construction, the largest amount since 2013.
About one million square feet will be delivered in 2020 and another 1.5 million in 2022. With sustained demand, new construction will likely be absorbed quickly as 65.9 per cent of the 2020 deliveries are already pre-leased.
“Large companies like Microsoft, Airbnb and Google are the ones directly benefiting from these developments,” said JLL research analyst Allison Wang. “WeWork is expanding rapidly by taking up the entire office portion of Humaniti.”
With the market approaching landlord-favourable conditions, Ottawa has seen some construction activity return. There are 289,845 square feet of office space under construction, according to the report, and Lo said more than 84 per cent of it is already leased.
“The current construction pipeline in Ottawa is quite subdued and that’s a positive for the market in its current state of recovery,” said Lo.
“The market has performed very well in the last year, considering the influx of new tenant types — like autonomous vehicles, cannabis and technology — in addition to the Canadian government as the traditional leader in office use.”
The federal government has leased 158,000 square feet at the first office development of Dream Office REIT’s (D-UN-T) Zibi project at 6 Booth St. The 182,000-square-foot building is 86.7 per cent pre-leased and is expected to be delivered in 2021.
There’s 428,599 square feet of office space under construction in downtown Calgary and another 377,414 square feet in the suburbs.
There’s 361,063 square feet of office space under construction in Edmonton.
“The Edmonton market has already been through the new office development phase after over 25 years of no new class-A development,” said JLL research analyst Daniel Toumine.
“With the current supply of office space and vacancy rates, we believe the Edmonton market is due for a pause and see little room for new office development until market conditions improve.”
Office building delivery pipeline
Here are some of the pending office buildings of at least 100,000 square feet scheduled for delivery in Toronto, Montreal and Vancouver this year and in 2020, according to JLL:
* West Block; 500 Lakeshore Blvd. W., Toronto; delivery expected in Q3 2019; seven storeys; 160,989 square feet; owned by Choice Properties REIT (CHP-UN-T); 100 per cent pre-leased; Loblaws is a major tenant;
* Richmond-Adelaide Centre; 85 Richmond St. W., Toronto; delivery expected in Q4 2019; 11 storeys; 180,000 square feet; owned by Oxford Properties; 90.8 per cent pre-leased; Confidential and Slalom are major tenants;
* Carré Saint-Laurent; 30 Saint-Catherine St. W., Montreal; delivery expected in 2019; eight storeys; 150,000 square feet; owned by Société de développement Angus; the Quebec government is the major tenant;
* 16 York; 16 York St., Toronto; delivery expected in Q2 2020; 32 storeys; 869,082 square feet; owned by Cadillac Fairview; 55.2 per cent pre-leased; First National Financial LP, HSBC, Investment Management Corporation of Ontario, LinkedIn and Freedom Mobile are major tenants;
* CIBC Square; 81 Bay St., Toronto; delivery expected in Q4 2020; 51 storeys; 1,522,000 square feet; owned by Ivanhoé Cambridge; 100 per cent pre-leased; CIBC, Boston Consulting Group, Microsoft, AGF, Birch Hill Equity Partners and BDO Canada are major tenants;
* 1720 du Canal St., Montreal; delivery expected in 2020; six storeys; 148,618 square feet; owned by Services Immobiliers Asgaard; Airbnb is the major tenant;
* 7240 Waverly Phase 1; 7240 Waverly St. W., Montreal; delivery expected in 2020; six storeys; 118,259 square feet.