CAPRE’s Toronto Data Center Summit Preview: CBRE’s Scott Harper Says Vacancy, Site Plan Permits, Capital Competition Keeping Barriers to Entry High in Toronto
TORONTO, ON — Scott Harper is an Associate Vice President at CBRE Limited in the Downtown office. He has worked with CBRE Limited since 1994, specializing in office leasing and investment sales. Scott acts on behalf of tenants in both the acquisition and disposition of leased and owned premises. Scott will be a featured speaker at CAPRE’s Fourth Annual Canadian Data Centre & Cloud Infrastructure Summit, so we connected with him to showcase the latest at CBRE and in Toronto.
Harper: We’ve been very active on the acquisition side of things in the last 60 days representing a group acquiring and leasing space. In the last year and a half, we’ve been active with groups looking to come into Toronto to develop new sites. In fall of 2017, we closed on the Edgeconnex acquisition at 565 Gordon Baker Road, a smaller 6 megawatt development deal that they purchased.
CAPRE: What about in the longer term? Perhaps in the last year or so. How would you characterize that activity?
Harper: Over last 12-16 months we’ve been busy with developers. A lot of US groups looking to enter the market have been taking to us about where the market sits in Toronto, since it’s such a difficult sector to enter. The economy is challenging — not just for data center firms.
CAPRE: Let’s talk about Toronto more broadly. What’s the market up to lately?
Harper: The Toronto market in the last 12 months has seen a significant boost. We’ve had, in terms of commitments, just over 30 megawatts of transactions happen. There were two huge transactions with Digital Realty and Urbicon and a smaller one with EdgeConnex. Two years ago the Toronto market on the wholesale side was maybe 40 megawatt in total. 24 months later, the market had doubled in size. You had essentially one tenant come into Toronto and take up an additional up to 30 megawatts between two different providers. So the market has seen a huge uptake in 2018-2019, to a size and scale that’s almost incomprehensible. The amount of leasing that happened in one year was almost equal to the size of the market over all.
CAPRE: What challenges exist at this interesting juncture for Toronto?
Harper: Toronto is a really challenging market to come into. There are three main challenges. One is the industrial vacancy rate. For most of the sectors that data centers are looking at – Markham, Mississagua, you could even say Richmond Hill – are at 1%. So trying to find a building to either buy or lease is challenging out of the gate. There simply is a massive supply constraint. And any new buildings being built are focused on the logistic side of the coin. Like Amazon is growing out in the western suburbs, where data centers don’t want to be, because of the connectivity.
CAPRE: What is the second challenge?
Harper: Challenge 2 is that if you’re going to do a greenfield development in Toronto, the site plan approval process can take upwards of 12 to 14 months. Building greenfield from start to finish is 36-40 months. So it’s a long process.
CAPRE: And what is the third and final challenge?
Harper: You’re competing with capital that’s well-known. If you’re going to buy a building or a piece of land, data centers aren’t an asset class that are typically well-known by the average lender or investor in Toronto. So people are hesitant to work with a data center purchaser who needs time to tie up and investigate power. Power can be hard to come by. In Toronto, the pathway to power isn’t always clear.
CAPRE: What are you looking forward to about CAPRE’s Fourth Annual Canadian Data Centre & Cloud Infrastructure Summit?
Harper: Every time I come into this event, I learn something new. There’s always a topic I’m nowhere near an expert on. This time, I’m interested to learn about the AI world – what are people seeing in terms of demand? I’m also becoming more and more interested in edge data centers and so I hope to have discussions with groups having more success with these smaller data centers at the Edge. And I also want to hear about 5G and where it’s going. With Cogeco Pier I being bought by Digital Colony, and Digital Colony being bought by Zayo, putting the puzzle together from a connectivity and roll out side, that’s an area I’m excited to find out more about. The pieces in the puzzle are finally being put together, and it’s complicated. So It’ll be interesting to see what comes together in the broad scheme of 5G growth.
Harper: People want to hear about the explosiveness in demand, especially in regards to Québec. The Toronto market somewhat seems to be stagnant, though 2018-2019 was explosive, primarily because of the power costs. The differential between Toronto and Québec. – obviously, hyperscale is driving both markets; power is driving the Québec market, and it’ll be interesting to hear about what other kind of hyperscale growth is happening in both markets. We see most of it, but not all of it.
CAPRE: Thanks for your time Scott. We’ll see you in Toronto.
Hear more from Scott at CAPRE’s Fourth Annual Canadian Data Centre & Cloud Infrastructure Summit where he will provide the 8:50 am – 9:20 am morning keynote presentation: “State of the Data Centre Industry in Greater Toronto and Emerging Canadian Markets.”