Tech Industry Strengthens Canadian Commercial Real Estate Market
The booming tech industry may lead to more commercial construction as developers and landlords look to capitalize on growing demand for office space, suggests Jones Lang LeSalle, a real estate services firm.
In Vancouver, Toronto, Kitchener-Cambridge-Waterloo and to an extent Montreal, expansion in local tech industries is leading to tighter vacancy rates for offices, says Brett Miller, president of JLL Canada.
“All of those markets are getting to a tighter supply point in the cycle,” adds Miller. “I would imagine that there will be some bullish developers who will go ahead with construction in order to meet the [demand],” he explains.
A greater share of people are working in the technology field in Canada than ever before, according to JLL’s Canada Technology Outlook – 2016 report. The field represents 2.8 per cent of all employment in the country, or 503,000 workers, as of the second quarter this year.
“The tech sector has seen robust employment growth, fueling their need for real estate,” adds the report, which says tech companies signed 15.8 per cent of leases for offices of 20,000 square feet or more in the first half of the year.
Toronto is the national leader for tech employment overall, with 155,733 jobs in the field located in there. The report highlights the Ontario capital’s historically low vacancy rate for office space — especially brick-and-beam offices that startups gravitate towards — in its downtown as a challenge.
So in response to supply constraints in Toronto, where office rents increased 0.4 per cent in 12 months recently, Miller expects some players in the commercial real estate market to send more office space down the pipeline with new projects.
While Kitchener-Cambridge-Waterloo has a much smaller tech workforce of 16,870, it has the highest share of tech employees anywhere in the country at 5.9 per cent of its total employment, compared to 4.6 per cent in Toronto.
The University of Waterloo produces a steady stream of educated potential hires, and as a result, the Kitchener-Cambridge-Waterloo region has attracted major companies including Electronic Arts and Shopify over the years while also becoming the breeding ground for firms such as Blackberry.
Montreal is the second-largest tech employer, with 87,433 tech jobs to be found throughout the city. “Montreal continues to offer the lowest operating costs for the software development industry among North America’s 20 biggest cities,” says the JLL outlook.
Looking forward, JLL’s Miller expects to see Canadian commercial real estate companies try to reduce overhead costs and increase density of existing holdings rather than a flurry of acquisitions.
“I think that companies are much more inwardly focused on their portfolios to see how they can squeeze out extra value,” says Miller.