A US president’s home stretch in the Oval Office is typically accompanied by a period of stock market buoyancy. Not least because of efforts by the incumbent to demonstrate economic health and his party’s re-electability.
Meanwhile, low oil prices, improved consumer confidence and a 14.5% spike in the sale of new homes up to November 2015, according to the Department of Commerce, all raise expectations. The US economy might not be described as a sprinter right now, but there is plenty going for this slow and steady workhorse.
“What we’ve got is a fairly good economic engine,” says Noble Carpenter, Cushman & Wakefield’s president of capital markets, Americas. “What that is creating is good demand for office, industrial and retail space.”
The picture north of the border is mixed. The trouble spots are regions that are reliant on Canada’s resource sector, which has plummeted in the past 18 months. The price of crude oil fell from a high above C$105 ($76) a barrel in June 2014 to below C$55 at the start of the year, while other commodities are at or near multi-year lows.
In oil-rich Alberta, the cities of Edmonton and Calgar, which house large offices and industrial businesses that are ancillary to the oil industry, are most affected. Despite this, Ken Norris, senior vice president and Ontario branch manager at Savills Studley, says it has not affected the country’s entire real estate market. “Toronto is doing very well. The market here is tied more to activity in the US, the financial sector and manufacturing, which is more dominant in Ontario than it would be in Alberta.”
Commercial hotspots
Indeed, Toronto continues to demonstrate resilience and there is an abundance of real estate opportunity on the horizon. “One of the tell-tale signs that Toronto is a strong market is the new office developments in the downtown core,” says Paul Kay, Savills Studley vice president. “Over the next 24 months, there will be 5m sq ft of new office developments, and there are more than 8m sq ft of speculative industrial construction in the area right now.”
In the US, gateway markets such as San Francisco and New York continue to demonstrate strength, says C&W’s Carpenter. “Some are beginning to feel cautious with San Francisco, but we don’t. Meanwhile, the New York office market remains very solid,” he says. “We also continue to see strong interest from foreign investors, despite the debt markets getting a little bit more jittery.”
Residential hotspots
The idea that urban living is growing is not new, but the demographic of city dwelling has seen a shift. According to Carpenter, baby boomers – those aged 65 and over – are moving into the cities, while younger people are staying in the cities longer. “Older people are selling their high-maintenance homes and moving into condominiums or rental apartments where somebody else takes care of it. We are seeing a rebirth of urbanisation,” he says. “Some people believe that New York condominium developments may be beginning to pull back because land prices are starting to soften. Is it possible that land prices could pull back? They may, but we remain bullish on New York’s economy and real estate market.”
Growth areas
Development in the downtown area of Toronto and its peripheries continue apace, but new plots of land are at a premium. As such, Kay at Savills Studley says that forward-thinking developers are looking at ways in which they can develop existing product.
This can be done by knocking stock down and building new, or by looking at the air rights above property and expanding skywards.
Risks & challenges
Carpenter suggests that real estate investors should keep an eye on the debt markets, which have the ability to foreshadow what we can expect from the economy, but warns off wariness.
“The last recession was a global financial crisis, “he says. “We have to remind ourselves that not all downturns are crises, sometimes it is just softening.
“The US banks, corporations, and consumers are significantly healthier. We are not forecasting 5% and 10% growth rates in 2016 but we are forecasting that the market will stay healthy, there will be good absorption and good sales volumes similar to 2015.”
Must-have contacts
Noble Carpenter
President of capital markets, Americas, Cushman & Wakefield
noble.carpenter@cushwake.com
Ken Norris
Senior vice president and Ontario branch manager, Savills Studley
knorris@savills-studley.com
Sarah Goulding
National market intelligence analyst for Canada, Colliers Canada
sarah.goulding@colliers.com
Paul Morassutti
Executive managing director, CBRE
paul.morassutti@cbre.com
City guide: Toronto
Overview
Toronto accounts for 19% of the nation’s $1.8tn GDP and ranks among the top 10 financial centres globally, employing more than 251,000 people in the financial services sector. KPMG’s 2014 Competitive Alternatives study found that Toronto offers one of the world’s most cost-effective business and investment climates for metropolitan populations of at least 2m people, ranking fourth out of 48 cities.
Why invest?
Downtown Toronto’s office market bucked the national trend and ended 2015 on a high. Leasing activity exceeded 1m sq ft and expansionary growth is showing no signs of slowing down, according to Cushman & Wakefield.
The Greater Toronto area continues to see impressive growth in industrial, generating 741,000 sq ft of positive absorption in Q4 2015. Occupied space increased by 9.1m sq ft last year, the highest since 2007.
The numbers
4,645,711 sq ft – office space under construction at the end of 2015
4% – overall industrial vacancy rate
$5,389 – price per sq m for a city centre apartment
The opportunities
Three new developments – Bay Adelaide East, One York Street, and The Globe and Mail Centre – will add 2.3m sq ft to inventory this year, but the outlook for downtown Toronto’s office market remains optimistic. Demand is expected to remain strong over the next few quarters, though stock market volatility may slow some decision makers, while continued growth in the US and a weak Canadian dollar are expected to bolster demand in suburban markets.
Active industrial development will bring 6m sq ft of construction to market. Quality industrial product for sale will remain tight due to a lack of investment opportunities and strong interest from prospective owner occupiers. Redevelopment activity will remain strong in 2016, driven by high development charges.
Stand-out scheme
Union Station Revitalization Project, Toronto. Almost a decade after the City of Toronto acquired Union Station, funds were allocated to carry out major restorative work to reshape the way people experience the transport hub. In addition to improving the efficiency of rail services, the C$640m initiative includes close to 200,000 sq ft of shops. The project is expected to complete in 2017.
Top tips
- Foodies should check out the St Lawrence market – it took the top spot in National Geographic’s top 10 food markets in the world
- Royal Ontario Museum houses a vast array of collections that bounce between natural science, ancient civilisation and art exhibits
- Spot a movie star – Toronto is North America’s third-largest venue for film-making, creating more than 25,000 jobs in feature film production
- Get some clean air at Toronto Islands, which comprise the largest urban
car-free community in North America
