York Region Office Space Financial/Market Analysis and Marketing Plan Study March 24, 2015 Plaza Three, 101-2000 Argentia Rd. Mississauga, ON Canada L5N 1V9 Tel (905) 272-3600 ● Fax (905) 272-3602 email: [email protected] Contents Page Executive Summary .................................................................................................................................................................................. (i) 1. Introduction ....................................................................................................................................................................................1 1.1 Terms of Reference ...............................................................................................................................................................1 1.2 Importance of Office Development ........................................................................................................................................1 1.3 The Need to Rethink Office Development Patterns in York Region .......................................................................................2 2. York Region’s Centres and Corridors – Background and Context ...................................................................................................3 2.1 Overview ...............................................................................................................................................................................3 2.1.1 Regional Centres ........................................................................................................................................................5 2.1.2 Regional Corridors ......................................................................................................................................................7 2.2 Policy Context ........................................................................................................................................................................9 2.2.1 Provincial Context .......................................................................................................................................................9 2.2.2 Regional Context ........................................................................................................................................................9 3. Greater Toronto Area Office Market ............................................................................................................................................... 10 3.1 Market Overview .................................................................................................................................................................. 10 3.2 Trends in Office Development Activity in the G.T.A. ............................................................................................................ 13 3.2.1 Annual Office Construction ....................................................................................................................................... 13 3.2.2 Annual Office Absorption .......................................................................................................................................... 17 3.2.3 Average Vacancy Rates ........................................................................................................................................... 18 3.2.4 Office Projects under Construction/Pre-leasing ........................................................................................................ 19 3.2.5 Shift in Office Development Patterns in the G.T.A. ................................................................................................... 20 3.3 Profile of York Region’s Office Market ................................................................................................................................. 26 3.3.1 York Region Employment Areas ............................................................................................................................... 26 3.3.2 Regional Centres ...................................................................................................................................................... 30 3.3.3 Regional Corridors .................................................................................................................................................... 31 3.4 Profile of Key G.T.A. Office Nodes/Corridors....................................................................................................................... 32 3.4.1 Durham Region ......................................................................................................................................................... 32 3.4.2 Halton Region ........................................................................................................................................................... 33 3.4.3 Peel Region .............................................................................................................................................................. 33 3.4.4 City of Toronto .......................................................................................................................................................... 35 3.5 Comparative Analysis – York Region and G.T.A. .............................................................................................................. 37 Watson & Associates Economists Ltd. H:\York Region\Office Space Financial Market Analysis\York Office Market Analysis Report Final.docx 4. Understanding Market Drivers for Office Development and Shifts in the Greater Toronto Area Office Market .............................. 42 4.1 Macro Economic Trends and Impacts on Office Market ...................................................................................................... 42 4.2 York Region Competitiveness of Office Development within the Greater Toronto Area Context ......................................... 45 4.3 Drivers of Shift in G.T.A. Office Development Activity ......................................................................................................... 46 4.3.1 Access to Transportation .......................................................................................................................................... 46 4.3.2 Labour Force Growth in Downtown Toronto and the “Millennial” Effect .................................................................... 49 4.3.3 Financial Considerations ........................................................................................................................................... 54 4.3.4 Conclusions on Drivers of Shift ................................................................................................................................. 61 4.4 Future Outlook for the Greater Toronto Area and York Region Office Markets ................................................................... 62 5. Detailed Cost Competitiveness and Financial Feasibility Analysis ................................................................................................. 64 5.1 Cost Competitiveness and Financial Feasibility Analysis Overview .................................................................................... 64 5.2 Prototypical Office Development ......................................................................................................................................... 68 5.3 Annualized Cost Comparative Analysis ............................................................................................................................... 70 5.3.1 Total Development Annualized Cost Framework ...................................................................................................... 70 5.3.2 Key Cost of Development Components .................................................................................................................... 72 5.3.3 Development Charges as a Share of Total Development Cost – York Context ........................................................ 76 5.3.4 Annualized Cost Comparative Assessment .............................................................................................................. 77 5.4 Residual Land Value Analysis – Rental Revenue Stream Scenario .................................................................................... 81 5.4.1 Residual Land Value Analysis Framework ................................................................................................................81 5.4.2 Office Space Market Rents ....................................................................................................................................... 82 5.4.3 Residual Land Value Analysis Comparative Assessment ......................................................................................... 84 5.5 Residual Land Value Analysis – Project Sale Scenario ....................................................................................................... 86 5.5.1 Residual Land Value Analysis Framework ................................................................................................................86 5.5.2 Office Building Space Sale Prices ............................................................................................................................ 87 5.5.3 Residual Land Value Analysis Comparative Assessment ........................................................................................