Are soaring gas prices changing Toronto’s real estate landscape?

http://www.building.ca/issues/ISarticle.asp?id=202569&story_id=656490140355&issue=08012008&PC

Here’s a fantastic solution to the problem below.
Allen Park

By: Tim Bristow

The continuous rise of oil and gas prices, hovering between $130 and $150 a barrel, is starting to impact businesses in the Greater Toronto Area in many ways. While this spike in energy costs has had an immediate impact on some companies, such as those within the shipping and transportation sector, over the longer term it will also significantly affect local businesses in other white collar sectors and eventually reshape Toronto’s commercial real estate landscape.

Over the past few years the City of Toronto experienced a massive exodus of businesses, mainly white collar service providers, from the downtown area to the suburbs. Various financial incentives, such as lower tax rates, attractive leasing and development costs and a plethora of parking space to accommodate employees who drive to their suburban-based workplace, have been a major trigger for this phenomenon. But this is about to change.

As the price of gas continues to climb, the cost of commuting to work, which already plays a key factor in attraction and retention of employees, is eroding these benefits and will pose a major challenge for suburban employers. The later, already faced with a mounting workforce shortage and pressure from workers who see their disposable income shrinking at every visit to the pump, will have to choose between a few options to offset the rising cost of commuting.

A viable long-term solution to mitigate this challenge would be to relocate businesses along TTC and other public transport lines. This shift will eventually lead to the accelerated development of business campuses and office buildings along public transport routes and to the repatriation of businesses back in Toronto. A similar trend has been seen in other cities like Boston, Chicago and New York.

This is going to be the next wave of urban development for Toronto. Already there is a wave of commercial space built around, along and at the outskirts of public transport lines such as the Allen Park project at Wilson Station, the Telus and RBC buildings currently under construction downtown and the commercial development planned along the extension of the TTC lines to York University and through the Don Mills corridor. This trend is fuelled by (i) expected growing demand for office space with proximity to public transportation, (ii) demographic shifts in the workforce with an increasing number of young employees living downtown and (iii) growing support from municipal officials vying to retain employment opportunities in the city.

This emerging wave of urban commercial development has different implications on various market players. From an employer’s perspective, businesses that are located in the suburbs should start taking action by initiating an internal assessment on the impact the continuous rise in the cost employee commuting will have on their business and the various available real estate alternatives, including future relocation of their offices closer to public transportation stations. Developers, on the other hand, should really understand the value of their location, how it is presented to potential tenants and the premium value of sites with proximity to public transportation routes. Additionally, developers should, if they haven’t already, look for those high-potential yet underdeveloped locations along the subway lines that with proper planning and development can yield great returns by capitalizing on the expected business repatriation of Toronto. B

Tim Bristow is vice president with Colliers International’s Office Practice Group. He has more than 22 years’ experience in advising large corporations, developers and landlords on commercial real estate projects, and can be contacted at tim.bristow@colliers.com.

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