Toronto Commercial Real Estate Trends
Toronto commercial real estate is subject of intense debate : whether we should expect real estate market to cool, and how the real estate market will behave after raising the rate on a mortgage by banks.
Against this background, the growing interest of investors in Toronto commercial real estate, which is a good indicator of the market conditions, came in as a surprise. Recently published statistics show that the number of permits for new construction in Canada in May 2010 increased by 5.4%.
In Canada, new construction projects began to decline as developers have started to be cautious about the boom. In these conditions, many developers thought it would be more promising to invest in the commercial real estate. So, growth in the construction of commercial property in Canada was much higher than the 5.4 %.
If we talk about Toronto (which stands apart from the rest of Canada because of its unique position), the number of permits for construction of residential property as in May 2010 fell by 23% compared to March, while the number of permits for the construction of Toronto commercial real estate for the same period increased by a whooping 119%, with a total value of new projects worth 1,254 billion dollars.
The interest of investors has changed because of the situation in the housing market. The impressive prices growth and an increasing interest in a good property, primarily in condominiums, has turned Toronto into one big construction site.
And although interest in this property remains high, the rate of price growth slowed down considerably. The buyers have become more interested in real estate in the secondary market.
Against the background of the skyrocketing prices of residential property, Toronto commercial real estate market became more and more underestimated. This becomes clear if we check how much it costs to rent space on the main streets of Toronto in the most fashionable areas.
It is worth noting that residential real estate in Canada, especially in Toronto, costs much lower than in other cities of the same level worldwide, which attracts a large number of investors. But when it comes to commercial real estate space, the difference in prices is even more striking.
For example, the most expensive streets in Canada are Bloor Street in Toronto and Saint Catherine Street in Montreal. There are located the most expensive boutiques and restaurants, and the main stream of tourists go shopping. It's here that Montreal and Toronto commercial real estate rent prices should be the highest.
What do we see? The average cost of renting premises in these areas is around $ 294.12 USD per square foot (3,162 USD per square meter). Toronto and Montreal rank #32 in the world, right between Honolulu and Amsterdam. The most expensive streets in the world are the Champs Elysees in Paris, where the cost of renting commercial space is $ 1,255.90 USD per square foot.
After that, go the Fifth Avenue in New York, Russell Street in Hong Kong and Bond Street in London, where the cost of renting commercial space is above $ 1,100 USD per square foot.
At the same time Toronto was the only Canadian city (except for Halifax), where the rent has increased in recent years y 7.14%, while in other Canadian cities, it just fell - In Vancouver it fell by 16.67% and in Calgary by 25% during the same period.
Rent prices for commercial property in Canada are so low for the same reason as the overall low cost of real estate, which experts say is greatly underestimated. This primarily refers to Toronto commercial real estate.
The city is steadily rising in recent years in the ranking of the most important financial and cultural centers in the world, and comes closer to leaders such as New York, Tokyo and London.
Economic crisis also influenced the formation of low prices for Toronto commercial real estate. Commercial property is directly dependent on the state of the economy. If the residential sector is resistant to the fluctuations of the economy (you need to live somewhere no matter what the financial climate in the country is), the need for industrial and commercial real estate depends on how well businesses are doing.
Undoubtedly, the economic crisis of late 2008 has forced many businesses to slow down or even stop business operations, and that directly impacted the demand for Toronto commercial property. As soon as the economy started to improve, more and more companies began to expand their activities, which immediately resulted in an increase in demand for commercial real estate.
If we talk about Toronto, we should take into account another phenomenon, namely, the rapid development of the city, the renovation of many older neighborhoods in the heart of Toronto, the advent of new residential areas in the suburbs. This rapid development encourages investment in the Toronto commercial real estate. It looks like its price will grow quickly, given the fact that it is very underestimated, and has enough room for growth).
So how will this trend affect the housing sector? It seems right now we are seeing the foundation for another round of house prices increase over the next two to three years. The significant decline of construction projects may result in the lack of new real estate for sale at the market. In fact, this causes the activity we see at the real estate market, which is particularly clearly seen in the market of condominiums in Toronto.
The price increase for Toronto commercial property is an indication that prices for real estate in general will rise even more, and this will encourage buyers to invest in residential property market.
Finally, we should not forget about inflation, whose rates remain relatively high. All of this is pushing investors to more active investing in the Toronto commercial real estate, as it is the most reliable means of saving money.On Toronto Commercial Real Estate I used materials written by Helen Riabinin, Sales Representative, Century 21 St.Andrew's Realty Inc. for Russian Toronto.
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