A Colliers International Research Report shows a growing demand towards ‘Office Condos’ among business owners in the City of Toronto and Metro Vancouver, as they discover that owning your office space can be more affordable than leasing.
In Metro Vancouver, the Colliers Office Condo Report shows the demand continuing to surge for investors and end-users alike and that is due to several variables including, low interest rates, strong price per square foot growth, increasing lease rates, and opportunity to build equity.
In 2010, only 31 per cent of office condo buyers in Vancouver were investors, a figure which has grown to a staggering 83 per cent by 2014. This increase in demand is also driven by the affordability and opportunity to own real estate as an investment that can be leased upon purchase. Using an example in a market with $35 per square foot lease rates, against office condo unit selling at $700 per square foot, the owners mortgage cost provides a savings of $3 per square foot. (Note: this is assuming a 3 per cent mortgage with 20 per cent down and amortized over 25 years).
In the City of Toronto, the demand for office condos is typically from end users, such as professional service firms, or local or international investors seeking a stable, solid and predictable cash flow. In 2015, 74 per cent of the office condo sales were to end-users, with 26 per cent to investors.
The Central North Market of the GTA has the most activity, recording 56 per cent of office condo sales in 2015 and offering 43 per cent of availability.
“Owning office space offers the advantages of having a fixed and clear cost in the wake of major increases in leasing rates, full control over the design taste and feel of your environment, the prospects of capital gain, and no longer having to worry about the lack of flexibility that is usually coupled with a leasing contract,” says Scott Chandler, Colliers International’s Senior Vice President, Capital Markets. “As lease rates continue to increase and Canadian lending rates remain low, business owners are discovering the advantages and opportunities to own their own office space rather than lease and the market has responded.
“A significant increase in the development of new office condo projects for the past six years,” added Chandler.
The Report specifically pointed to Yonge Park Plaza, a mixed-use 4-star hotel and office building in the Central North Market of the GTA, as an example of this office condos trend. Located at 4050 Yonge Street (at York Mills Road) and being developed by Markham, ON-based The Gupta Group, this recently announced corporate centre will be well-served by highways and multiple transit options, including direct access to the subway.
Added Chandler, “Because of the power of its location, Yonge Park Plaza speaks to the strength of a potential investment in office space for the end-user, should conditions of their business ever change or should they require an exit strategy.”
“Much like the trend in condos has made thousands of Canadian homeowners, despite the price of detached homes, business owners are now seeing the value of owning versus renting their space,” said Steve Gupta, president and CEO of The Gupta Group. “Yonge Park Plaza is among only 9 per cent of all GTA buildings located within walking distance of both a transit stop and a highway interchange, and for owners, this is the magic math that speaks to a sound real estate investment.
“For example, this location means a significant return on investment, since we expect this building to lease faster, for premium rent and stay leased longer with less turnover and ongoing lower vacancy, than other buildings,” Gupta added.
The Colliers Office Condos Research Report says that much like home ownership, office ownership is an investment in your financial future.
Said Chandler, “For investors, owning your office space can offer a solid, consistent levered cash-flow and an opportunity to diversify your portfolio. For end-users, current low lending rates can make the product more affordable than leasing, and the strong capital appreciation can provide solid equity growth.”
Strata titled office/warehouse product has long been a common form of development in Vancouver. Units have been getting bigger, better and more expensive over the last number of years. This form of development has now shifted to the retail and office asset classes in a meaningful way. “From an office perspective, the key drivers are the lack of sites for small owner occupied developments, and developers are now focusing on purpose-built strata office product rather than offering residual office product in mixed-use developments and most importantly, the acceptance of the product into a liquid secondary market in the event the owner outgrows the space, or needs to downsize,” says Kirk Kuester, Executive Managing Director, Colliers Vancouver. “If an owner or investor wishes to sell, there is an active market to now sell into, which might not have existed five years ago,” he added.