Downtown Toronto Confirmed and Proposed Developments Office Commercial Real Estate


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Downtown Toronto Confirmed and Proposed Developments Office Commercial Real Estate

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Downtown Toronto Confirmed and Proposed Developments Office Commercial Real Estate

  1. 1. About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. JLL is the brand name of Jones Lang LaSalle Incorporated. For further information, visit JLL Research JLL’s research team delivers intelligence, analysis, and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our 415 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For further information, visit © 2014 Jones Lang LaSalle All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. Prepared by JLL Research: Thomas Forr National Research Coordinator Taylor McCarten Associate 199 Bay Street Suit 4610, Box 407. Toronto, Ontario M5L 1G3 Tel: +1 416 304 6000 Fax: : +1 416 304 6001 The Quartet: Look Forward Toronto | Summer 2014 MON TREALTORO NTO CALG ARYR VAVV NC OUVER
  2. 2. RISING LEASEHOLD INVESTMENTS A recent trend of increasing leasehold investments has emerged in the market – in some cases exceeding $300 per square foot. For tenants, the increased adoption of Alternative Workplace Strategies to optimize mobility/productivity and lower on-going costs of space management is the key driver. For landlords, amortizing some of the improvement costs provides increased face revenue. TENANT STABILITY The recent insolvency of law firms Heenan Blaikie and Goodman & Carr have caused landlords to reevaluate the credit worthiness of limited liability partnerships (LLP). We see landlords demanding stronger covenants from incoming LLPs and demonstrating reluctance to fund their leasehold improvements. Law firms, many of which are LLPs, make up roughly 15.0 percent of Toronto’s financial core tenancies. 45 BAY STREET Ivanhoe Cambridge recently announced a new proposed development at 45 Bay Street. If Ivanhoe builds, they have the benefit of being one of the least affected landlords in a high-supply market and of pulling tenants primarily from competitors. 45 Bay is estimated to be around one million square feet, and TD, with its 400,000 square feet requirement, could potentially fulfill the pre-leasing threshold Ivanhoe seeks before breaking ground. WHY RELOCATE AND REVITALIZE? – 3 KEY REASONS Observing tenants that have pre-leased, JLL has identified the major motives to relocate to be LEED certification, consolidation, and the attraction of millennials. All seven of Toronto’s under construction developments are pursuing LEED Gold/Platinum certifications allowing major cost savings for tenants through lower additional rents. However, a more significant benefit has been the effective densification of the workplace allowing more workers and more productivity within a smaller space. This has further encouraged a second major motive for relocation: consolidation, which enables enhanced footprint reduction. These two changes can work together to lower occupied area. Looking at pre-leasing in new developments, total rentable area leased by the committed tenants is at least 300,000 square feet less than the space(s) from which they are moving. This drives a decrease in occupancy costs and further increases market vacancy upon development delivery. Our final major motive is the attraction of millennials, a key feature for companies looking to stay ahead of their competition. Toronto’s new developments have achieved sleek, modern designs, excellent public transit access and environmental sustainability, values that are held high by the next generations of workers. In doing so, they have achieved a new prestigious and attractive identity for the millennials; separate than the identity established by the traditional bank towers for the Boomer generation. Downtown Toronto's Confirmed and Proposed Developments An analysis of new supply trends in the Downtown Class A office market Occupied Floor Available Floor Retail Floor Confirmed Projects Pre-Leasing Developments 1 RBC WaterPark Place III 88 Queen’s Quay West 2 Southcore Financial Tower 120 Bremner Boulvard 5 Bay Adelaide Centre East 22 Adelaide Street West 4 One York 1 York Street 3. Queen Richmond Centre 134 Peter Street 10 45 Bay Street 45 Bay Street 8 Union Centre 20 York Street 9 160 Front Street West 160 Front Street West 6 Richmond Adelaide Centre III 100 Adelaide Street West 7 Globe and Mail Centre 351 King Street East 30 35 40 45 50 55 5 10 15 20 25 Address RBC WaterPark Place III 88 Queen's Quay West South Core Financial Centre 120 Bremner Blvd. Queen Richmond Centre 134 Peter Street Bay Adelaide Centre East 22 Adelaide Street West One York 1 York Street Ernst & Young Tower 100 Adelaide Street West Globe and Mail Centre 351 King Street East 160 Front Street West 160 Front Street West 45 Bay Street 45 Bay Street Union Centre 20 York Street Area 886,026 s.f. 674,320 s.f. 285,505 s.f. 1,012,388 s.f. 800,000 s.f. 899,064 s.f. 455,000 s.f. 1,200,000 s.f. 1,000,000 s.f. 1,070,000 s.f. Floors 30 31 17 44 35 40 17 54 50 48 Typical Floor Plate 26,666 s.f. 24,600 s.f. 23,604 s.f. 23,000 s.f. 27,692 s.f. 23,500 s.f. 25,000 s.f. 26,000 s.f. 21,000 27,000 s.f. Anchor Tenant(s) Royal Bank of Canada Marsh McLennan Sapient Deloitte HOOPP/Sunlife E&Y Globe and Mail N/A N/A N/A Available Space 176,892 s.f. 296,527 s.f. 154,472 s.f. 438,092 s.f. 379,610 s.f. 486,241 s.f. 267,500 s.f. 1,200,000 s.f. 1,000,000 s.f. 1,070,000 s.f. Landlord(s) Oxford BcIMC Allied Brookfield HOOPP/Menkes/Sun Life Oxford First Gulf Cadillac Fairview Ivanhoe Cambridge Allied Est. Delivery Date Q3 2014 Q3 2014 Q3 2015 Q1 2016 Q2 2016 Q2 2017 2016 + 2018 + 2018 + 2018 + 1 2 4 5 6 7 8 9 103 New Market Dynamics JLL has identified three new dynamics in the Toronto market: recent tenant insolvency; a trend of rising invest- ment in leasehold improvements; and the entrance of Ivanhoe Cambridge.
  3. 3. 2 1 10 6 5 3 8 9 7 4 QUEEN STREET W. QUEEN STREET E. DUNDAS STREET W. COLLEGE STREET DUNDAS STREET E. KING STREET W. GARDINER EXPRESSWAY SPADINAAVENUE BAYSTREET BAYSTREET YONGESTREET UNIVERSITYAVENUE KING STREET E. WELLINGTON STREET W. YORKSTREET JARVISSTREET PARLIMENTSTREET BERKLEYSTREET PETERSTREET SIMCOESTREET FRONT STREET W. BREMNER BLVD QUEEN’S QUAY W. QUEEN’S QUAY E. FRONT STREET E. RICHMOND STREET W. GERRARD STREET W. GERRARD STREET E. RICHMOND STREET E. ADELAIDE STREET W. ADELAIDE STREET E. 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2004 2005 20006 2007 2008 2009 2010 2011 2012 2103 2014F 2015F 2016F 2017F 2018F Forecast Confirmed Supply Low Case Vacancy Medium Case Vacancy High Case Vacancy SQUAREFEET VACANCYRATEVacancy Graph Downtown Class A Vacancy Forecast Throughlate2014-2016,sevenunderconstructiondevelopmentswillbringanadditional5.0millionsquarefeettoDowntownToronto,raisingtheofficesupplyofCanada’slargest business district to over 75 million square feet. Rising vacancy and slower leasing activity have taken over as tenants anticipate better leverage with the increased supply. In these changing market conditions, the launch of another of the city’s seven currently proposed developments has become unclear. Should a landlord decide to venture forward with another new development, the decision to do so relies largely on securing a large and dependable anchor tenant. The Toronto-Dominion Bank, with 400,000 square feet up for lease in 2018, is the best available tenant with a requirement and for the moment, has become the key deciding element on whether or not another development launches. Toronto Market Leverage 2014 2015 2016 2017 Landlord-favourable market Neutral market Tenant-favourable market 5 Million s.f. Under Construction DOWNTOWN CLASS A 56 Percent Pre-Leased JUNE 2014 5.7 Million s.f. Proposed Development Bay Adelaide Centre East