A perfect storm of events is leading a number of small and medium-sized businesses in Vancouver and Toronto to forsake leasing office space in favour of buying office condominiums.
"It's a relatively small percentage, but it's growing," says Scott Chandler, Colliers International senior vice-president of capital markets.
Commercial condo sales have averaged between $70-million and $80-million over the past five years in Toronto, and about double that in Vancouver, according to a Colliers International report. They are gaining in popularity because of low interest rates, the opportunity for buyers to build equity, increasing lease rates and robust price-per-square-foot growth.
The average size of office condos sold within Vancouver was 1,710 square feet last year, while those in the suburbs averaged 2,393, with the overall size of the units smaller than those in Toronto.
From 2010 to 2015, there were 177 office condo sales in 66 buildings in Toronto, mostly adjacent to transportation lines and major highways. End users purchased 74 per cent of the condos available in Toronto last year, and developers are starting to cater to them by building more of them.
While the report looked exclusively at the markets in Toronto and Vancouver, the cities where commercial condos are most widespread, Mr. Chandler says they are present in other Canadian cities and their popularity will grow as time goes on.
"I think it will expand. It makes a lot of sense, especially in a low-interest-rate environment and a leasing market that is growing and has good prospects for capital gains as rental rates go up."