Canada's tech boom redefines its office space

Canada’s tech firms are no longer only located in old manufacturing buildings on the outskirts of town, as more look to take over prime office space in the downtown core of big cities like Toronto.

July 20, 2017

As technology firms grow and their needs become more sophisticated, they are looking to take over prime office space in the downtown core of big cities such as Toronto, Vancouver and Montreal. Good access to local transport and open, flexible and communal floor-plans are top of their list to attract the best talent.

Such growth is not, however, without its challenges. Like major countries in Asia and Europe, Canada’s blossoming tech sector is putting the country’s office market under pressure as both global tech firms and younger start-ups acquire an increasing amount of space in a growing number of cities.

Indeed, growing employment levels in the technology sector has propelled real estate leasing in recent months. According to the Q1 Office Outlook report from JLL Canada, the technology sector was the driving force for leasing activities in the first quarter of 2017, accounting for 24.5 percent of leases signed for spaces greater than 20,000 square feet with Toronto and Vancouver remaining the most active markets for technology growth.

“As the tech sector continues to grow, it will create interesting challenges for the commercial real estate market in Canada,” says Brett Elofson, Senior Vice President, Tenant Representation Group, JLL Canada. “The limited supply in downtown office market will lead to a rise in commercial real estate rents. Markets across Canada have reported rapid growth due to the emergence of the tech sector and this trend is expected to continue in the following years”.

Silicon Valley North

In a bid to attract technology companies to Canada, the mayor of Toronto attended the City Age Conference in San Francisco in 2016 to attract technical and research expertise to southern Ontario.

By the end of 2016, Toronto was home to 2,500 start-ups, with that figure steadily increasing. “Toronto provides a thriving ecosystem for tech firms, with all the necessary amenities of a tech hub, and the scale of global city,” says Elofson

It’s not just start-ups that are attracted to Toronto; established tech companies do too. Uber recently revealed that it will launch a new state-of-the-art research facility for driverless cars in Toronto, along with Google’s application to build a high-tech neighborhood near the waterfront. “Increased tech activity and the need to attract talents are the lead drivers of Toronto’s evolving office market,” adds Elofson.

Other cities in Canada, such as Vancouver, are also looking to build a reputation as emerging tech hubs. “Vancouver has seen tremendous demand from American companies looking to take advantage of its exceptional talent pool and proximity to the robust tech sectors on the west coast of the United States,” explains Gavin Reynolds, Executive Vice President, Tenant Representation Group, JLL Canada. The city is currently home to three of Canada’s tech ‘unicorns’ (start-ups valued at more than $1 billion), namely Slack, Hootsuite and Avigilon.

The tech industry continues to thrive in Vancouver, tech leasing accounted for 28 percent of leases greater than 20,000 square feet in the first two quarter of 2017. “Vancouver has been able to establish itself as one of Canada’s leading tech hubs because of its provincial tax incentives and its proximity and equivalent time zone to the Silicon Valley and Seattle, which consequently is driving absorption in the downtown office market more than all other sectors combined,” explains Reynolds.

Montreal has also surfaced as a leading tech hub in Canada, with neighborhoods like Mile-End/Mile-Ex sector and Cité Multimedia providing loft-style buildings around the downtown core. This could be attributed to the availability of skilled talent and the tax and financial incentives associated with the tech industry in the city region.

“Montreal has become a haven for tech firms because of the low operating costs that the city provides,” notes Bernard Lawrence, Senior Vice President, Tenant Representation Group, JLL Canada. “With two world-class universities in the city and a sizable inflow of local and foreign students, companies have a deep, highly skilled talent pool to draw from in Montreal.”

Further growth expected

Political and economic uncertainty in the U.S. is leading growing numbers of risk-averse investors and growing tech firms to look north of the border to Canada. As U.S.-imposed travel bans and visa restrictions cause a number of skilled tech professionals to reconsider living and working in America, Canada is well positioned to become their preferred destination. “With U.S. technology firms looking to further expand their presence in Canada, the country will continue to see an influx of highly-skilled immigrants enter the workforce, creating more demand for office space and future development,” concludes Reynolds.

Other factors are also at play. The recently launched Global Skills Strategy by the Canadian government, which gives innovative companies access to temporary, highly skilled foreign workers, will further drive the demand for office space especially in the tech sector. Meanwhile wider demographic changes will also have a big impact. The growth of Millennials as largest working age group especially in tech sector and their preference for city life will drive tech companies to locate their offices in major cities.

All of the signs point to a growing tech sector within Canada – and as it expands, the country’s real estate will need to evolve to keep up. With flexible and open floor plans a top priority to encourage creativity and nurture innovation, the tech sector is challenging traditional office space to provide workplaces that can enable tech firms to deliver results.