Toronto’s rocketing tech sector is reverberating in commercial and residential real estate markets. The city spawned more than 80,000 new tech-related jobs between 2013 and 2018 and is positioned third among 50 North American centres analyzed in CBRE’s recently released tech talent scorecard, trailing only entrenched hubs in the San Francisco Bay Area and Seattle.
Vancouver, Montreal and Ottawa also place prominently in the top 20, while six other Canadian markets — Hamilton, Waterloo Region, Edmonton, Quebec City, Winnipeg and Calgary — are included in a list of 25 burgeoning next-level tech centres. The rankings reflect CBRE’s assessment of each market’s competitive appeal based on 13 variously weighted indicators that collectively present a picture of employment trends and other factors helping to attract and sustain a tech labour force.
That encompasses 20 different occupations, including software developers, programmers, systems and data managers, and engineers and engineering technicians. As of 2018, about 833,000 Canadians, equating to 5.3 per cent of national employment, and 5.2 million Americans, representing 3.7 per cent of the U.S. workforce, filled such positions.
Approximately 37 per cent are embedded directly in the high-tech industry, while the larger remainder hold technical roles in other sectors. Notably, finance, insurance and real estate (FIRE) accounts for 8.3 per cent of all tech positions. Additionally, the high-tech sector has generated a roughly equal number of non-tech jobs in management and support services.
“Tech job growth has a multiplier effect in the economy and the influence of tech is reshaping virtually every sector of real estate,” affirms Paul Morassutti, vice chairman of CBRE Canada. “Tech talent workers are fuelling innovation and adapting technology within the non-traditional sectors to increase productivity and strengthen the Canadian economy.”
Tech industry tenants reportedly drove 20 per cent of U.S. office leasing activity in the first half of this year. Over the past year in Toronto, CBRE tallies the top five office deals involving tech tenants at collectively more than 1 million square feet of space.
That’s primarily destined for two new towers currently under construction downtown: 634,000 square feet in The Well, an Allied Properties-RioCan joint development at 8 Spadina Avenue; and 132,000 square feet in the Ivanhoé Cambridge-Hines project, CIBC Square, at 81 Bay Street. Yet, illustrative of the sector’s sweep, the other major deals are in less conventional nodes, including 145,000 square feet in a older, brick mid-rise building in Toronto’s inner-city Junction Triangle neighbourhood and 101,500 square feet in suburban Richmond Hill.
In the same period, the five largest tech office deals in Vancouver accounted for 671,700 square feet of absorption. The five largest deals in Montreal and Ottawa equate to 380,700 square feet and 188,600 square feet respectively.
Deepening talent pool improves conditions for innovation
The four Canadian cities all surpass the 50,000-worker threshold to meet CBRE’s characterization of a large tech talent labour pool — ranging from 228,500 tech jobs in Toronto to 64,500 in Ottawa as of 2018. While Toronto’s tech sector enjoyed the most intense growth spurt in North America over a five-year period, expanding by 54 per cent, and absorbing the second largest influx of workers in sheer numbers, Ottawa was one of only two surveyed markets to experience a decline in tech employment in the years from 2013 to 2018. (The other, Norfolk, Virginia, was ranked at the bottom of the list, 31 notches below Ottawa’s 19th place.)
Despite the slippage of 3,600 jobs, tech talent continues to comprise 9.9 per cent of Ottawa’s total workforce. This makes it the second most concentrated labour pool after San Francisco Bay Area’s 10 per cent, and ranks as a key impetus for innovation. Like Toronto and Vancouver, the city has also gained an above-average share of residents in their twenties — identified as the critical early-career demographic, which promises years of growing expertise and contribution into the future.
The pace of in-migration and affordability for both employers and employees also figures in projections of the potential for tech-based economic development. Factors such as post-secondary institutions, the match of skills to opportunities and the urban backdrop all contribute to nurturing the workforce and building tech industry scale.
“Both large and small markets have their advantages. While large markets tend to have a deeper pool of talent, small markets typically offer business and cost-of-living savings,” CBRE analysts submit. “Similar traits among markets cause many of them to appear equivalent, but top tech markets distinguish themselves from the rest with tech clusters and higher concentrations of tech talent.”
Because there are fewer per capita than in the United States, Canada’s post-secondary institutions typically loom larger in the economy and social fabric of their host communities. Toronto is deemed a beneficiary of thriving tech clusters linked to the University of Toronto and the University of Waterloo, while University of British Columbia and McGill University are similar triggers in Vancouver and Montreal. Waterloo is most prolific — identified as the pipeline for 314 start-ups that have raised USD $7.4 billion (CAD $9.7 billion) in capital — while McGill can claim bragging rights for 304 start-ups that have raised USD $7.1 billion (CAD $9.4 billion).
Toronto and Vancouver both welcomed inbound migration — dubbed “brain gain” — measured as the ratio of new tech jobs to the number of tech graduates from local post-secondary institutions. Arriving brains helped to fill 22,300 newly created jobs in Vancouver over the 2013-2018 period, equating to a 42.6 per cent tech job growth rate and propelling the city to number 12 in CBRE’s ranking.
In 13th place, Montreal added 16,600 new tech jobs in the same period, representing a 14.6 per cent expansion of a larger workforce. In total, 130,200 tech workers are employed in Montreal versus 74,700 in Vancouver.
Tech brains moving to a new city could expect to find the lowest rent in Montreal, pegged at USD $614 (CAD $810). However, even the priciest Canadian rent — Toronto’s monthly average of USD $1,069 (CAD $1,411) — ranks 35th among the 50 cities. Based on average rents and tech wages, Montreal-based tech workers also enjoy the greatest buying power in Canada and the third best of the 50 cities, with a rent-to-wage ratio of 12.6 per cent.
Renters in Vancouver would shell out about 20.7 per cent of their earnings for accommodations, while Torontonians would pay 20 per cent. Despite higher rents in Seattle, pegged at USD $1,694 (CAD $2,236) per month, tech workers there could expect to spend a lower percentage of their earnings, 17.3 per cent, on rental housing. In contrast, tech workers would have to allot 26.4 per cent of earnings to cover rental housing costs in the San Francisco Bay Area, which posts an average monthly rent of USD $2,856 (CAD $3,770).
Currency value differential bolsters cost competitiveness
Canadian cities are larger than most others in the top 20. Toronto, Montreal and Vancouver are the second, third and fourth most populous (after New York), while Ottawa has the ninth largest population. With approximately 6.4 million residents, the GTA is two and half times larger than the San Francisco Bay Area and nearly nine times larger than Seattle.
However, across the 50 North American markets, the differential in currency value serves up the lowest combined labour and space costs for employers in Ottawa, Toronto, Vancouver and Montreal. CBRE plots the cost of a 500-person tech firm occupying 75,000 square feet from a high of USD $59.4 million (CAD $77.2 million) in the San Francisco Bay Area to a low of USD $28.6 million (CAD $37.7 million) in Montreal.
The biggest chunk of Canadian savings is found in labour costs. Based on CBRE’s estimates, rent would account for a varying proportion of combined labour and space costs, ranging from 8.4 per cent in Vancouver to 5.7 per cent in Ottawa.
In Toronto, space represents 6.8 per cent of the projected combined costs, and would be 57 per cent cheaper than an equivalent amount of space in the San Francisco Bay area or 26 per cent cheaper than the same office footprint in Seattle. Labour costs would be nearly 48 per cent lower than in the San Francisco Bay area or nearly 41 per cent lower than in Seattle.
Start-ups or expanding companies might find it somewhat easier to secure office space in Seattle, which recorded a 9.4 per cent vacancy rate in the first quarter of 2019 versus Toronto’s 7.1 per cent vacancy. San Francisco presented a lower vacancy rate, at 6.1 per cent, and the second highest average asking rent of the 50 cities at USD $68.88 (CAD $90.92) per square foot.
Favourable cost comparisons also underpin Canada’s prominence in the list of 25 second-tier markets poised to ascend. Hamilton and Waterloo Region are ranked second and third, after Tucson, Arizona, and just ahead of Las Vegas. The two key regional anchors of the Greater Golden Horseshoe boast a combined tech workforce of nearly 39,000. Following 52 per cent tech job growth in the 2013-18 period, Hamilton now hosts 18,100 tech workers; Waterloo’s tech workforce expanded by 40 per cent, reaching 20,500.
“Opportunity markets offer quality labour pools and affordability that supports rapid scalability,” Morassutti says. “These markets can be ideal for small-scale operations, start-ups and tech jobs with non-tech employers like banks, media and service firms.”
Edmonton is ranked ninth on the next-25 list, while Quebec City, Winnipeg and Calgary are clustered in the bottom quintile. Calgary has the largest tech workforce — at 38,500 — of any of the 25 cities, but it’s one of two, along with Birmingham, Alabama, that lost tech jobs in the preceding five-year period.