Toronto Office Space Prices Heat Up

Although signs of a cooling Canadian real estate market have come to fruition, the demand and prices for Toronto office space is taking off. A new report from real estate firm, Colliers International, finds that vacancy rates for office space across the GTA have declined from 7.2% in the third quarter of last year to 6.3% in the same quarter of 2012. This has resulted in rent increasing by 13% to $17.83 per square foot per year and is on par with the price levels before the 2008 recession. In addition, midtown Toronto is also exhibiting signs of strength as the vacancy rate has declined to 5.5% and the asking price for rent is $16.88 per square foot.

John Arnoldi, Collier International’s executive managing director of the Toronto region, states that Toronto’s pipeline of new projects and inventory is conservative relative to North American cities such as New York and Boston because the low vacancy rates are expected to decline even greater than current levels. According to Mr. Arnoldi, the catalyst for this increase in demand will be due to a relocation of businesses back to the core of Toronto.

It appears that investing in Toronto real estate is a win-win situation: investors get the dual benefits of soaring property values as well as rising rental yields. This trend can stay in place as long as the Bank of Canada sustains its current level of monetary stimulus. However, if the Bank of Canada changes its stance and interest rates begin to tick up the risk-to-reward profile of real estate investing will deteriorate. It is imperative to be aware of the various risk factors which can affect the whole premise of your investment thesis.

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