Observations and Forecasts for Corporate Real Estate Trends in 2016
As 2015 came to a close, we saw the ongoing fall of oil prices significantly impact the Canadian dollar. But despite Canada’s dampened economic performance, 2016 is showing promise for a mixed growth trend nationwide. And while regionally, expansion rates have varied, Toronto and the GTA posted healthy gains at the end of 2015 and show a forecasted growth by the Conference Board of Canada.
Here is a compilation of some of our observations and forecasts for the GTA corporate real estate market in 2016:
We have now seen three straight quarters of positive space absorption in the Greater Toronto Area real estate market, but an increase in new construction is beginning to take hold. These new developments will add new inventory into the market as 2016 begins, so expect to see a vacancy spike in key suburban office markets like Meadowvale, Oakville and the Airport Corporate Centre.
We are also seeing a number of engineering firms shedding space as global infrastructure and oil sands projects grind to a halt, which means more space is becoming available as Canadian headquarters in the GTA look to rightsize.
Finally, private equity owners in the consumer packaged goods industry are seeking greater consolidation and cost savings through real estate and employee reductions, discarding property investment as their space requirements decrease.
Growth and opportunity
Despite the influx in vacancies forecasted for the first quarter of 2016, merger and acquisition activity in financial services and health services industries will likely drive new requirements for 2016/2017 occupancy in suburban markets which will create much-needed velocity and optimism with developers that went ahead with speculative office developments.
Because of better quality premises and secure low-cost space in the GTA suburbs, the area will remain an opportunistic market for organizations looking to upgrade their spaces, known as Flight to Quality. Tenants located in downtown Toronto will find value in the GTA suburban office market for back-office and technical service functions requiring a skills workforce with access to amenities and transit on the forefront. Will we see a reverse migration for these uses?
And while Pension Funds have opted not to invest in suburban office spaces, opportunities for strategic acquisitions will be available for value-add purchases and private investors at below replacement cost.
Greatest growth areas
We will see the greatest opportunities for tenants requiring 25,000 square feet or more in the Airport Corporate Centre, Highway 427 and Meadowvale nodes. And with transit and retail amenities improving in areas such as Vaughan, Hurontario and the Airport Corporate Centre, we expect to see these areas becoming more attractive to suburban users as projects are completed later this year.