Toronto may face more competition as a city of choice for corporate headquarters with the high Canadian dollar and incentives making the U.S. look increasingly attractive, according to a consultant study.
“Canada has weathered the recession much better than the U.S. has, and the result of that is that the office market in the U.S. has been hit very, very hard and Class A office space (in the U.S.) is at historic lows,” said John Boyd of the Boyd Company, a New Jersey location consulting firm. “We see increased competition, we see more governors spending time in Toronto trying to poach Canadian companies.”
The study by Boyd, who was in Toronto to woo potential clients, said the Toronto area is Canada’s most expensive place to operate corporate headquarters.
It based its results on a hypothetical headquarters of about 100,000 square feet and 500 workers. In Toronto, that would cost about $39.2 million per year, with Vancouver closely behind at just under $39 million. In Canada’s cheapest region around Halifax, it would cost about $32.9 million.
Out of 50 North American cities, New York was, predictably, the priciest at $47.2 million annually. Toronto was ranked 21 overall. Four Canadian cities — Halifax, Edmonton, Winnipeg and Calgary — made up the cheapest in the study.
The report points to firms that have left Toronto for the U.S., such as Hot Brands and Direct Energy. Indiana has gone so far as to offer incentives for headquarters to move, with tax credits equal to half of relocation costs to companies that create more than 75 jobs.
But Scott Addison, president of eastern Canada for Colliers International, said he hasn’t seen any trend pointing toward an exodus of company headquarters to potentially cheaper cities south of the border.
“We haven’t seen that at all,” said Addison. “Costs are high but we’re actually seeing a shift more back to the downtown as the residential condos are built and people want to work near where they live.”
Brad Dugard from Cushman & Wakefield commercial brokerage said there is still high demand for office space in downtown Toronto. “Toronto is also very affordable by global standards. Large multinationals making a decision between say London, Toyko or Toronto, would find the rates here very attractive,” Dugard wrote in an email.
Toronto, like most major Canadian cities, faces a crunch in office space. Its vacancy rate in downtown is just 4.5 per cent, compared to the national average of 8 per cent, according to a recent report.
A building boom currently underway that added about 4.5 million square feet in office space, with another 3.7 million due to come on market between 2014 and 2016, should ease that somewhat.
“Commercial space in Toronto is very competitive with the premiere office markets (in the U.S.),” said Boyd. “So the new influx of Class A office … that’s a good thing.”Toronto benefits from its reputation as a world-class city with a major international airport, health care and a diverse population, said Boyd.