November 26, 2019

The Economic Shift Reshaping Canadian Cities

You may not be able to quantify the changes happening in the city around you, but if you happen to live in Canada's largest city, you have likely felt some of the dramatic changes that are underway. The next time you're packed into a subway car during your morning commute, lined up to get into the newest restaurant or find your local park crowded with millennials on the weekend, you might reflect on the fact that you're in the midst a remarkable shift that has changed the way people live and work in Toronto.

Tech jobs addedOver the past decade, Canadian cities have undergone a slow but undeniable transition. While much of the attention has focused on housing accessibility and affordability, underlying this discussion is an economic shift featuring a rapidly expanding tech sector and white-collar work that is reshaping the downtown skyline as a wave of new office space is built to house the new economy.

At the centre of this shift is Toronto, North America's third largest tech market and Canada's largest labour pool. The city has added an astonishing 80,100 tech jobs since 2013, a rate outpaced only by the infamous San Francisco Bay Area.

The growth in tech is at the forefront of a move towards white-collar work in the city's downtown core, where demand for office space has never been higher. The downtown vacancy rate sits at just 2.6%, the lowest rate in North America. That's despite being amid one of the largest office construction booms in history, with 9.2 million sq. ft. of space under construction as of Q2 2019.

White-collar jobs now represent 55.0% of the city's workforce, above the national average of 52.7%. But this number hides a larger story – where these professionals are working and living, and what it will mean for the city's commercial real estate market in the months and years to come.

 

Small Shift, Big Impact

Using percentage terms to discuss Toronto's white-collar job growth hides the scale of the change, especially in the city's downtown core. While white-collar employment rose just 2.5% from 2008 to 2018, that number represents a remarkable 107,050 jobs, with many funneled straight into the city's tight office market.

The commercial real estate market is feeling the effects of these employment and population changes. Office rents are rising steeply in response to demand. In a landlord's market, tenants of all sizes and quality covenants are having to strategic and decisive when it comes to making decisions about their office space requirements. Some are turning to flexible real estate operators to house a portion of their employees, while others are seeking multiple downtown locations instead of a single, larger workplace.

Meanwhile, blue-collar employment has fluctuated as the sector adjusts to a rapidly expanding and ever-changing economy. Blue-collar employment climbed in the early stages of the economic recovery from 2013 to 2018, adding 7,600 jobs. But that number dropped off steeply from 2013 to 2018, with 53,234 jobs lost as white-collar employment was rising.

Where these jobs are being added is also changing. While more and more white-collar workers are making their way to the city centre, blue-collar workers are headed to the city's outer reaches, where industrial construction is reaching record highs.

Still, supply is struggling to keep up with record demand, with many companies in need of distribution facilities close to the downtown core. Rents are increasing, while industrial developers search for innovative solutions to accommodate the rise of ecommerce and get goods to market, fast.

white collar employment | blue collar employment


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Toronto in Transition

As the city's white-collar job market grows, workers are looking for homes close to the office. Mapping the data illustrates this trend.

Over the past decade, a "White-Collar Corridor" has emerged along the subway line between Highway 401 and Union Station, which largely represents condos that offer a relatively affordable entry point into the housing market and a direct commute to downtown.

Meanwhile, areas adjacent to the downtown core including the South Core and Liberty Village have become hubs for young white-collar workers drawn to plentiful amenities and convenient streetcar access.

As more and more office workers look for housing close to work, areas east and west of the downtown core will likely become bedroom communities as well.
white collar corridor
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Big Changes Beyond the Downtown Core

While the largest increases to the white-collar workforce can be found in downtown Toronto, the economic expansion of the Greater Toronto Area is sending some workers farther afield.

The third largest increase in white-collar workers over the past decade was in Mimico, reflecting the continued relevance of bedroom communities across the GTA. Those looking for more space, a slower pace of life and greater affordability will continue to populate neighbourhoods and towns that feed business in Toronto.

The suburbs are also home to significant blue-collar employment growth, where record industrial construction is underway. The connection between white-collar and blue-collar remains – as tech companies drive the need for logistics and distribution centres, blue-collar jobs will continue to rise in industrial areas.

white collar | blue collar change
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Know Your Past to Know Your Future

Few residents of Toronto could have anticipated the changes that would take place between 1990 and 2019. The economy, technology and lifestyles continue to shift in favour of downtown development. It makes you wonder how this city will look 30 years from now, when there is already 9.2 million sq. ft. of office space and over 71,000 condo units under construction.

Source: CBRE Limited

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