Toronto's downtown office market appears poised to explode again with construction, as the commercial real estate industry waits for that one spark to kick-start the office sector.
Rumours swirl that Brookfield Office Properties will begin a new round of aggressive building in the country's largest office market with an announcement it will go ahead with the second tower for its Bay-Adelaide Centre.
The initial tower provided significant impetus for a round of construction when it was announced in 2006.
Accounting and consulting firm Deloitte Canada is said to be the big fish Brookfield is courting for its second tower while the CPP Investment Board is said to be looking for as much as 180,000 square feet of space.
"I think we are definitely at the point where we can justify new construction," says Ross Moore, director of research for Canada for CB Richard Ellis, about the current vacancy rate of 4.7% in Toronto's downtown core.
Brookfield spokeswoman Melissa Coley says there is nothing to report on the Bay-Adelaide Centre other than it is in planning stages.
The company's website says its new building, Bay-Adelaide East, is a 43-storey, 900,000-square-foot office tower.
"You can feel the wave building by the day," says Mr. Moore, about new construction. "I think in the next 60 days we are going to have announcements that will probably surprise a lot of people."
If you add up everything that is about to be built in the downtown it equals 4.1 million square feet, just slightly below the 4.4 million square feet built in the last construction wave.
Among the buildings in addition to Bay-Adelaide expected to go, or already under construction, are RBC WaterPark Place, a 933,000-sq.-ft. development by Oxford Properties Corp.; One York, an 800,000-sq.-ft. project from Menkes Developments Inc. and Healthcare of Ontario Pension Plan; and a 760,000-sq.-ft. building from GWL Realty Advisors, which has signed two major tenants.
"We are getting to that point that we were at in 2006," said Bill Argeropoulos, vice-president director of research with Avison Young. "There is a lot of rumbling in the marketplace. Obviously we are on cusp of the next development wave."
His company projects the overall downtown vacancy rate at 5.3% and notes the earliest any new office supply can be delivered in the downtown core would be 2014.
The risk for landlords as these buildings begin construction is they end up cannibalizing their own tenants unless they can do what a company like First Gulf did and attract a tenant like Coca-Cola Canada back to the downtown core.
"There has been a bit of reverse migration," said Mr. Argeropoulos. "There has not been a lot examples that this is a trend. Last go around there was Telus Corp."
All of this comes as Bank of Nova Scotia continues to be in the midst of selling its head office in the heart of the financial district. Even with an aging building, Scotiabank has attracted numerous offers for the building, which is expected to fetch well beyond $1-billion.
"[Commercial] development also continues to compete with residential development [for space]," says Mr. Argeropoulos. "You have all these people living downtown but they also want to work downtown."
Dean Newman, principal and broker of record for Cresa Toronto, which represents tenants, said it could be a opportunity.
"Landlords are propping themselves up to launch new buildings and there is an appetite in the market for new buildings," said Mr. Newman. "Part of this is driven by the desire of tenants to reinvent the way they are using space and their layouts."
He says rents in the heart of the financial district remain high and that has many looking just outside for a better deal in a newer product.
"If you can buy a new car at the same price as an old car, just because the old car theoretically has a more prestigious sticker, why bother," said Mr. Newman.
"It's like a brand-new Hyundai, you see it on the road and say 'What is it?' You look at it [and] decide the car looks pretty nice."
http://www.vancouversun.com/business/commercial-real-estate/Toronto+office+market+poised+boom/6623854/story.htmlPosted via email from Markham Real Estate Today with Asif Khan
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