Office properties’ close proximity to a subway station adds to higher occupancy and rental rates and higher sale prices, according to a newly released study on subway connectivity to the office real estate market in downtown Toronto.
The Avison Young research, led by Bill Argeropoulos, principal and practice leader of research (Canada) for Avison Young, also found that such access creates value for surrounding buildings from the perspective of both owners and occupiers.
“Tenants are placing as much importance on transit connectivity as they are on sustainability characteristics – such as LEED certification – and employee wellness,” says Argeropoulos. “We have seen an increasing number of requests for proposals and tenant requirements that specify a location within 500 metres of a subway line, as tenants recognize the value of easy subway access for attracting and retaining employees.”
The study, conducted in early fall 2015, examined the entire downtown market’s 401 existing office buildings totalling almost 72 million square feet across all building classes, as well as seven buildings currently under construction and 13 potential development sites. The buildings were classified according to which Toronto Transit Commission (TTC) subway station they were closest to, and their distance from that station in metres, which was determined based on above-ground walking distance for pedestrians.
Research concluded that across downtown, the vacancy rate for office buildings less than a 500 metre walk from the subway was 6.1 per cent, slightly below the overall downtown average and significantly lower than the 9.7 per cent vacancy rate for buildings beyond the 500 metre range.
Findings also showed that between October 2012 and early fall 2015 buildings within a 500 metre walk of a subway station sold for an average of $475 per square foot, while those beyond that range had an average sale price of $364 per square foot during the same period.
An examination of new development pricing reveals that the towers closest to the subway have reaped the rewards, with a premium of nearly $7 per square foot on net face rates compared with those achieved by buildings further from the subway completed since 2009 or currently under construction.
“Developers are not missing out on these trends,” Argeropoulos adds. “There are at least 13 notable office development sites in downtown Toronto, with eight – that’s 62 per cent – less than 500m from a subway stop. These projects are well-positioned to capitalize on tenants’ demand for transit connectivity, as well as all the other sustainable attributes and modern features offered by new developments.”