The city of Toronto is continuing its largest and most rapid expansion in over 175 years. Toronto has the most new skyscrapers under construction among the 26 major global cities included in PwC’s Cities of Opportunity report. With lower energy prices, the weaker Canadian dollar and improving prospects for manufacturing, transportation, warehousing and other sectors in eastern Canada, investors and developers are still looking at new opportunities in fast-growing Toronto.
Toronto is one of North America’s major economic centers and the hub of the Canadian financial industry with six million regional inhabitants, 40% of the nation’s business headquarters, nearly a fifth of Canada’s GDP and 45% of Ontario’s GDP. Toronto is currently ranked fourth in the world in terms of global competitiveness and as the 10th most influential financial center.
NEW SUPPLY TREND, GREATER TORONTO
Nevertheless, many observers are wondering how much longer Toronto’s real estate market can continue to grow. The economy and real estate market have only grown or held stable in the seven years since the Great Recession and the 13 years leading up to it. Many suspect a downturn is coming, especially in the housing markets, where affordability is a primary concern. The office and industrial sectors continue to expand, with investors and developers becoming more selective in choosing opportunities.
With a 7.3% office vacancy rate, among the lowest in Canada, infill developments and redevelopments remain high on the agenda, given Toronto’s commitment to intensifying its urban core. Rents and cap rates are generally flat, and the outlook for the office market is positive, with 3.6 million sq ft of new stock, most of which is pre-leased, expected to come on stream in the next two to three years.
The rapid development of real estate in Toronto has been a direct result of business growth and a stable economic climate. Several conditions are driving attractive market returns, including competitive interest rates, strong public universities turning out a highly educated workforce, and the lowest taxes on new business investment and lowest debt-to-GDP ratios in the G-7.
The city also has a secret weapon. Toronto’s workforce is the most diverse in the country and arguably on the continent in terms of ethnic origin, educational background and skillset, with over 50% of the population being foreign- born. Toronto has shown that a diverse workforce that is effectively incorporated into the cultural fabric can be tremendously powerful.