Canadian central business district (CBD) office markets present the best value in North America for technology companies, from both labour and occupancy cost perspectives, according to research conducted by Cushman & Wakefield.
“Not only are Canadian markets far more competitive than most of their U.S. counterparts, a more competitive Canadian dollar puts an exclamation mark on just how much of a financial advantage markets in Canada can provide,” Cushman & Wakefield’s national research director Stuart Barron told RENX.
The research shows technology companies can save tens of millions or hundreds of millions of dollars for a 100,000-square-foot location over a 10-year lease period due to these factors.
The Toronto CBD is the top technology office market in Canada due to its deep talent pool, which is attracted by the downtown lifestyle and housing options from a condominium building boom. However, its office rents, technology and non-technology labour costs are higher than Montreal, Edmonton, Ottawa, Vancouver and Calgary.
Toronto Canada’s technology sector leader
Nevertheless, Toronto is significantly less expensive for technology companies to do business than in American tech hubs including Charlotte, Denver, Houston, Chicago, Boston, Washington, Seattle, New York City and, the most expensive, San Francisco.
“We expect that technology companies will drive more than 40 per cent of the growth in the downtown Toronto market over the next two to three years,” said Barron. “Right now it’s a landlord’s market in rather dramatic fashion.
“Overall availability has fallen to 1.9 per cent in the downtown market. Outside of the financial core, where tech has seen strong historic growth, the market is even tighter, with overall availability falling to only 1.4 per cent. So the real challenge over the short run is finding available space.”
Good news is on the horizon, however, as about 12 million square feet of new office product will rise in Toronto between 2020 and 2024.
While technology has been a catalyst for rapid growth in the Toronto and Vancouver CBD office markets in recent years, the biggest risk to its continued expansion is housing affordability.
“Rising residential home prices and rental accommodation costs are putting significant financial pressure on the current talent pool in downtown Toronto,” said Barron. “If you can’t afford to live in these markets, you won’t be working in these markets.”
Other hot Canadian technology markets
Barron said the technology sectors in Montreal and other Canadian cities are gaining momentum, in part due to their lower costs, as companies continue to test the waters in new locations.
“Smaller markets are also strong technology destinations, such as the very hot Kitchener-Waterloo, a technology mecca and startup region, and markets like Ottawa and Edmonton that have a reputation and tradition of tech knowledge and growth that are key office growth drivers.”
It’s not just technology that’s fuelling Toronto’s booming office market, however, according to Barron.
“Banking will continue to be a key driver, particularly the technology divisions within the banking sector. Rising interest rates should fuel some growth across the insurance market. Marketing and communications, where deeper analytics are being further integrated into business solutions, will see growth. Information and data companies will also find the high growth trail.”
Co-working space should continue to grow
One other sector has seen significant growth in recent years in Canada’s largest centres.
Shared space accounted for 12.4 per cent of the overall downtown office absorption in Toronto and Vancouver from 2015 to 2018. That demand is accelerating as occupier needs transform.
This will enable continued growth for co-working locations — a trend confirmed recently when Spaces and Regus owner IWG announced it will open at least nine new locations across Canada in 2019. Combined, they’ll encompass about 375,000 square feet.
“Some landlords will dig right into this evolving business and offer similar services within their own local, national or international inventory of product,” said Barron. “Others are embracing traditional co-working companies, allowing them to lease space in buildings as a strategy that allows their own tenants to take advantage of services offered by co-working companies.”