Toronto Advised To Keep Building, Ignore Trump

Cushman & Wakefield’s global chief economist, Kevin Thorpe, has one small piece of advice for Toronto’s commercial real estate industry: “Build more.”

“The demand for commercial real estate will remain healthy in most markets and most product types,” Thorpe said at C&W’s State of Real Estate conference last week in Toronto. “And I can say that with some degree of confidence because the world economy is already accelerating. In fact, there’s never been a year when the global economy has grown and demand for commercial real estate space didn’t also grow.”

Thorpe said his conclusion was based on a number of ongoing developments. Besides the synchronized economic growth worldwide, Thorpe said the equity markets are on fire, with stock markets gaining more than $3 trillion in wealth since November. He spoke along with Cushman & Wakefield national research director Stuart Barron and senior managing director for capital markets Janice Stanton on the Canadian market, Toronto and what U.S. President Donald Trump means for CRE across the border and close to home.

“A lot of this is a long time coming, so the results are fierce," Thorpe said.

Some of this is based on the assumption there will be greater fiscal stimulus in the U.S., perhaps because of deregulation, he said. Businesses and people are working really hard to clean up their balance sheets, and people are finally moving on from the financial crisis. Global confidence is at its highest level in more than a decade, he said.

“Confidence is a very, very important economic indicator. When people are confident they are generally spending more, which boosts business profits and creates jobs,“ Thorpe said. “Europe’s economic sentiment index recently hit its highest level since 2011. In the U.S., consumer and business confidence is at the highest it’s been in 15 years.”

The same goes for Toronto.

Barron said downtown Toronto has ranked among the North American leaders in real estate growth over the last two years, with the burgeoning tech industry particularly strong.

The recent massive development in downtown Toronto would mark the third development cycle, which is unheard of, he said.

Of course, all the good statistics can go for naught without the confidence to take advantage of the situation. Barron said downtown buildings do not go up overnight.

“You have to build in this kind of environment. These buildings preceded demand. You had to take a risk,” he said. “And vacancy is still low after all that building. [It] feels like that cycle is going to increase. It doesn’t feel like it’s reached its maturity.”

The one fly-in-the-ointment remains Trump, whose volatility could potentially affect the global and Canadian economy, including Toronto’s commercial real estate.

Despite calling Washington a political disaster, Thorpe cautioned against overreacting. He said Trump’s recent reversal on his oft-repeated call to repeal NAFTA as an example of the need for calm.

"Don’t dramatically change your real estate strategy based on what you’re hearing on the news coming out of Washington,” he said. “I think what’s important to remember is the United States is not a dictatorship. It’s a political system with three branches that is designed so that no one individual gains too much power.”

Thorpe said the Trump presidency has added a lot of variables to his economic predictions.

“The current political environment has made it very challenging to say the least. So much of what I have to say today comes with an unusually large disclaimer," he said.