The Biggest Factors Affecting Commercial Real Estate in Toronto

By January 10, 2020 News
CHI Blog

Will Toronto Continue to Be a Leader for a Commercial Investment Property?

Are you thinking about investing in a commercial warehouse, corporate office, or retail space in Toronto any time soon? Then you must understand the factors that affect property value the most to make conscious decisions and land profitable deals.

Commercial properties in Toronto are both varied and abundant. A bit of research is necessary for choosing the ideal property at the best price, whether it’s a(n):

  • Office space
  • Warehouse
  • Shopping center
  • Industrial facility
  • Apartment complex
  • Medical centers
  • Garages

Real estate investors in this market always familiarize themselves with the factors that guide commercial pricing, especially since it’s ever-changing

Property Attributes

What a commercial property offers to potential buyers largely dictate its price on the market. Some examples of these attributes include:

  • Size of both the lot and building. The positioning of the property on the lot matters too (e.g. Corner)
  • Age of the building.
  • Included amenities, like extra rooms, storage facilities, and elevators.
  • Appearance of the property. If the building looks dated with an unattractive exterior, then it won’t be a positive first impression to potential buyers.
  • Methods of selling. Real estate agencies that specialize in commercial properties come into play here by increasing the value of the property.
  • Potential for redevelopment. It’s not uncommon for property owners to repurpose a building for a different purpose. An unused warehouse might turn into a shopping center, for instance, to meet changing local demands.

Economic Factors

The value of a property is always dependent on the economic environment around it. Commercial real estate is especially vulnerable to shifts in the economic sphere of its community.

  • Supply and demand. A well-known economic rule is that, when demand exceeds supply, the price goes up. A shopping mall in a crowded city area is likely to have a higher price than an isolated apartment for this reason.
  • Incomes. When people have more disposable income, they are more likely to invest in commercial properties. The local average salary also puts the price of the property into perspective. The high cost of an apartment complex in one region could be explained by a high average family income there. Unemployment rates may also impact this factor.
  • Interest rates. Also known as the cost of credit, interest rates are a primary driver of commercial property prices and mortgages. Cheaper credit often leads to more property investment, so keep track of mortgage interest rate forecasts.
  • Population shifts. Official government studies conclude that the population of Toronto is on a steady rise. The result is more demand and more real estate sales.

Location

“It’s all about location.” You’ll hear this phrase all across the real estate market for a valid reason. Local factors have a considerable influence on commercial property value.

  • Population demographics.
  • Nearby amenities and services, such as transportation, grocery stores, and laundromats. Having a residential property close to a TTC subway line would be beneficial to its value.
  • Surrounding properties. Visualize how commercial properties interact with each other. A large apartment complex, for instance, brings in business to a local restaurant property.

The Coworking Movement

Finally, a new movement known as coworking is changing how commercial real estate works, especially in large cities like Toronto.

Coworking is the practice of selling communal office space to a variety of companies. Popularized by WeWork, coworking enables individual businesses to rent portions of a large office shared with other companies. This approach offers all the benefits of a large office, such as shared utilities and networking opportunities, without the extra cost.

The trend appealed the most to startup owners and freelancers, who moved their work activities from the coffee shop to an actual, rented office. Even large companies are beginning to adopt coworking too, thanks to its many benefits over traditional office spaces:

  • Shared cost of utilities, resulting in more efficient use of water, electricity, and Internet access.
  • Excellent flexibility. Short-term renting is possible with coworking, even on an hourly basis. Newly developing companies take advantage of this benefit often.
  • Maintenance is the task of the building manager rather than the companies. Coworking centers usually come with their own furniture, as well.

So, what impact does coworking have on commercial property prices? A study by Green Street predicts a reduction in office demand of up to 3% by 2030. However, other studies like one from CBRE Group conclude that flexible workspaces typically reach higher values than the average office building despite some additional risk.

While the coworking movement is going strong with little indication of slowing down, there has been some turmoil. WeWork, the founder of the movement mentioned earlier, suffered such a disastrous period of earnings recently that SoftBank, a Japanese banking firm and investor in the company paid the CEO $1.7 billion to take control of the company.

SoftBank CEO Masayoshi Son admitted that his “judgment around WeWork was not right in many ways.”

CHI Real Estate: Your Guides for Commercial Real Estate

Taking on the commercial real estate market in a city as large as Toronto seems daunting with all of these factors. If you’re serious about succeeding, get in touch with CHI Real Estate, one of the world’s top commercial property experts.

Whether it’s a restaurant, commercial warehouse, or apartment, working with CHI enables you to make informed business decisions to land the best sales.

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