Smith Company - Toronto Office Leasing Index Predicts Future Demand for Office Space

    TORONTO, Nov. 29 /CNW/ - Smith Company, as specialists in office and
commercial leasing, have developed the Smith Company Office Leasing Index
(OLI) to measure potential demand in the Toronto office leasing market. The
Smith Company OLI is Toronto's first measure of potential office leasing
demand using an ongoing tracking study - index approach. A perpetual problem
in the commercial real estate industry is predicting the demand for commercial
real estate, office space versus the more predictable supply of premises. This
index is based on a tracking study developed by Smith Company. This study
tracks potential demand for office space based on office space user and owner
    We are now able to report on the findings based on the first two runs of
this study; we have both an initial reading of the market and we can observe
the evolution in the market over the period from January 2007 to July 2007,
using a sample of over 30 interviews. Going forward, this tracking study will
be conducted on a regular basis to periodically obtain this reading of the
potential demand for office space.


    The OLI was conducted as a telephone survey with over 30 respondents. The
survey used 14 questions addressing issues in both the current context and the
expected situation in 12 months time. Each question used a five-point scale
(1 - low to 5 - high) for the answer; respondents were also able to provide
comments. Users and owners answered 10 common questions and 4 additional
questions for their group. The basic scores out of 70 (based on 14 questions
and the five-point scale) were converted to a score out of 100. Questions for
all respondents included: perceived economic conditions; vacancy rates; net
effective rents; user inducements; and overall demand. Users answered
questions on current and expected staffing and office space needs. Owners
answered additional questions on current and future absorption rates and
subleasing activity.


    The OLI has been stable between winter and summer. The average OLI based
on users and owners in the first run was 69.2 and it has increased slightly to
70.4. The individual scores for both users and owners were very similar, as
shown below. As noted above, the basic score out of 70 was converted to a
score out of 100.

    Respondent Group      Users              Owners          Users/Owners
    Phase 1                 66.9               71.4               69.2
    Phase 2                 71.1               69.6               70.4
    Change              +4.2/6.2%          -1.8/2.6%          +2.0/2.9%

    The overall user score increased from 66.9 to 71.1, however answers to
two questions suggest the potential for softer demand.
    On current and future staffing, the average user score softened to 3.5
and 2.8 from 4.0 and 3.5 respectively. This finding suggests that
staffing-driven space requirements may be less important.
    On future office space needs, the current and 12 months hence scores
reduced to 3.4 and 3.4 from 4.0 and 4.3 respectively. This suggests, going
forward, a more moderate demand for additional space.


    For owners, the overall score softened from 71.4 to 69.6. Within that
score, it is notable that owners see:

    -   An increasing current absorption rate score (3.7 compared to 3.3)
        with some softening expected 12 months hence (3.3 moving to 2.9); and

    -   Occupancy rates, both currently and 12 months hence are expected to
        be somewhat higher (2.8 and 3.4 moving to 4.1 and 4.3 respectively).

    Overall commentary

    The first two runs of the Smith Company OLI suggest that the potential
demand is stable, but that demand could be based on factors other than user
changes in staffing levels or the physical need for more space.
    Currently, the economy is being affected by both turmoil in the
commercial paper market for asset-backed securities and the strong demand for
Canadian exports and the strength in the Canadian dollar.
    The effects of recent turmoil in the commercial paper markets, especially
the effects for some companies of reduced cash availability from unredeemed
asset-backed commercial paper holdings, suggests that office demand could be
softer from companies with ABCP-related liquidity issues.
    Commodities continue to be strong, as Canadian economic and political
stability offset higher production costs in sourcing decisions, meaning that
Toronto head-office functions for commodity producers could be on an upward
    The net effect is unclear at this stage, but the strength of the Toronto
office market could be affected by the demand level of these two trends.
    We look forward to reporting on the next results of the Smith Company
Office Leasing Index.

    About Smith Company

    Smith Company is a full service commercial real estate brokerage firm
offering the highest level of tenant and landlord representation services in
Toronto. Since our inception in 1991, we have maintained our geographical
focus and commitment to providing superior local real estate advice. As a
result of our focus on the Toronto marketplace, we provide our tenant and
landlord clients with the most current, in-depth, and relevant local market
information; information that matters.
    Smith Company is an ISO-9001 certified company providing office and
commercial real estate brokerage services in the Greater Toronto area.

For further information:

For further information: Paul Smith of Smith Company, (416) 366-7000,
401 Bay Street, Suite 2704, P.O. Box 59, Toronto, ON, M5H 2Y4

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