The tech industry has been responsible for a large chunk of office leasing during the pandemic and Toronto leads the way in North America for tech job growth, according to CBRE’s annual Tech-30 2021 report.
Vancouver and Montreal also fared well and the report even offered some encouraging news for Calgary’s beleaguered office market – even before this week’s major announcement of an Amazon Web Services hub which will be created in the Alberta city.
Toronto saw 26 per cent job growth from 2019 to 2020, according to the report, which measures the tech industry’s impact on office demand and rents in the 30 leading tech markets in Canada and the U.S. The latest report covers until the end of 2020. Vancouver was in third place for tech job growth in 2019-’20 at 21 per cent.
“If anything, 2021 might be even a bigger year for Toronto from the tech growth perspective,” says Michael Case, managing director, office leasing at CBRE’s downtown Toronto office. “If we’re not No. 1, we’ll certainly be near the top of the list in 2021.”
Toronto on cover of Tech-30 report
Case says the city’s No. 1 ranking and appearance on the report’s cover page “really puts Toronto and Canada on the map from a global perspective, if we weren’t there already. This is going to put even more spotlight on Toronto.”
Case says job growth in Toronto’s tech industry led to a significant 17 per cent rental growth in Q2 2021 versus Q2 2019 in the brick-and-beam Downtown West submarket, which is popular with tech tenants.
The report also found Vancouver’s Broadway Corridor tech submarket saw a 12 per cent rent increase during that period.
“We’re seeing competitive offer situations from high-quality, move-in ready sublet space,” with tech companies responsible for many of the deals in new downtown Toronto office towers, Case says.
For example, Case says Facebook has just leased 130,000 square feet at Cadillac Fairview’s 33-storey, 870,000-square-foot property at 16 York St. “That was significant growth for them. They had a much smaller footprint,” he says of Facebook.
He adds there are rumours Amazon, which leased 130,000 square feet of office space in the city about a year ago, is now looking for even more space.
“From the tech perspective, the office market is doing quite well right now despite the pandemic.”
Flight to quality, other Canadian cities
Tech firms “are doubling down” on office space and are taking advantage of all the sublets that have hit the market, Case says. “There’s some great space and the tech companies are the ones that are gobbling it up. I think they’re expecting there will be a bounceback, likely next year.”
Case says there has been a flight to quality. “You’ve got good space, it will lease quite quickly, even in a pandemic. We’re seeing competitive offer situations, which is a little bit against what some of the headlines have been saying, but it is tech that is really driving that demand.”
The report also found Montreal was second to Charlotte for having the best combination of tech job growth and momentum, office market performance and demand recovery among Tech-30 markets. Toronto placed ninth and Vancouver was 10th in this category.
Calgary, Waterloo and Ottawa were tapped in the report as among the next 10 tech markets to watch.
Case says Calgary, which has significantly high office vacancy rates, made the list “because people see a lot of opportunities there to get good quality office space at significantly lower rents.”
His prediction has already been borne out – AWS announced this week the creation of AWS Canada West Region, which will be based in Calgary.
Amazon says the development and operations of the cloud infrastructure and services hub will result in the creation of 950 jobs and lead to a $4.3-billion investment through 2037, though it did not offer any specifics about how that investment will be broken down.
Tech growth across North America
Tech job growth is strongly correlated with office rent growth in Tech-30 markets and the tech industry led a rebound in North American office-leasing activity in 2021, the report finds.
High-tech companies have dominated the leasing of office space over the last five years, the report notes. The tech industry’s share of leasing activity by square footage has increased to 22 per cent in 2019 from 12 per cent in 2010.
CBRE says tech companies have accounted for 10 per cent of Canadian office leasing year-to-date, with a 60 per cent increase in the third quarter over the first quarter of 2021.
In a statement, Colin Yasukochi, executive director of CBRE’s Tech Insights Center, said “many tech companies are, like other industries, embracing hybrid work formats to provide their employees with flexibility. But, the industry also values the collaborative environment of the physical office and its role in bringing employees together to foster innovation.”