Sorry, I meant new proposals. There is so much in the pipeline I'd find it hard to believe that a developer would expect a return on a new office space proposal. I also would be surprised if more than one of the existing proposals goes through. Nobody wants space anymore.
This is from Cushman and Wakefield's Toronto Office Market report Q1 2023:
Link: file:///D:/Downloads/Toronto_Americas_Marketbeat-Office_Q1-2023.pdf
On the one hand we see very high vacancy; but worth noting here....is that net asking is not materially dropping.
To be clear the market for general-purpose, commercial office space downtown is at 3-decade low but I also wouldn't overplay it; we've been so used to sub 4% in Toronto as the hottest market on the continent that we've forgotten most U.S. cities routinely ran 10-12 % vacancy pre-Covid.
That said, the above conditions are certainly not conducive to major new builds just at the moment.
However, I'm not as glum as
@AHK.
First, off, I'm seeing footfall numbers for downtown retail that approaching pre-Covid levels Tues-Thurs.
That suggests we are seeing more people back at the office, as does all the additional rush-hour GO service coming to LSW in a week's time.
I think we're probably at the market's nadir for class-A space, downtown, for the moment, but we shall see.
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That said, I think you will see contraction of Class B and Class C space downtown, at least some of which will go residential, particularly heritage buildings suited to upmarket, loft-like living.
I also expect to see ongoing contraction in suburban space as well, particularly outside key nodes.
The market near downtown for Life Sciences space, including wet labs remains tight, and I think you will see new builds near U of T/ UHN in that regard; there are some other specialized offices that will also be open for near-term growth.
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I think we also need to understand that Toronto is adding ~125,000 people per year as a region, which is 625,000 over the next 5 years. That alone is a lot of lawyers, doctors, architects, engineers etc etc. who will need offices of some type.
Doubtless we will some lasting impact from Covid with a greater proportion of WFH; but I don't think it will lead to consequential reductions in Class A, downtown office space in the near term, or abate the need for an increase in the medium term.
Other markets will be hit harder though.