Toronto tech scene creating new wealth

At a recent dinner party, there was a lot of chatter about what seems to be an explosion of newly-created wealth in Toronto with folks asking, “Where is it all coming from?” – especially given the pressures on traditional sources of wealth-creation such as manufacturing, mining and financial services.

One answer may be that Toronto has quickly and quietly emerged as one of the largest technology centres in North America – much of it happening in the King West corridor, where Newport’s head office is located, and much of it occurring within the past couple of years.

Case in point: Microsoft has just announced plans for a new Canadian headquarters in Toronto’s downtown core and Intel is building a new graphics chip engineering plant in North York. Shopify will spend $500 million for new offices at Front Street West and Spadina, and Uber Technologies announced it was opening an engineering hub to support driverless car research, its first such office outside the U.S. These companies are just a few examples of the trend that is driving (excuse the pun!) Toronto’s tech boom.

Recently, Newport Portfolio Manager, Kevin Dean attended the National Bank Financial Markets’ Toronto Economic Dinner with Chief Economist and Strategist, Stéfane Marion who presented the case for why technology firms – established names and start-ups alike – are choosing Canada, and Toronto, in particular. Below are a few interesting facts behind the anecdotal evidence and headline announcements:

• Over the past five years, the Greater Toronto Area has added 82,000 technology jobs, more than Silicon Valley and the most of any North American city for the second year in a row according to a report from CBRE*
• Toronto now ranks fourth behind San Francisco, Seattle, and Washington D.C. on CBRE’s Annual Tech Talent Scorecard which ranks cities on 13 unique metrics to be an important technology hub in North America*
• Toronto remains highly affordable compared to other large cities based on a tech wage to apartment rent ratio*
• The labour cost vs labour quality ratio is also highly favourable in Toronto and other Canadian cities, giving tech companies greater value for their spend on human capital*
• Relative to the rest of the world, Canada has the highest share of population aged 25-34 with post-secondary education and has the highest percentage of foreign-born residents between the ages of 15-64 with post-secondary education*
• Canada has the highest inflow of workforce-ready immigrants in the OECD*
• Other Canadian cities are also attracting tech talent – with Ottawa and Montreal ranking 13th and 14th in CBRE’s report. Smaller centres, like B.C.’s Okanagan Valley, where Newport also has an office, are also experiencing unprecedented prosperity through tech. Today, tech is a $1 billion+ industry for the area, home to nearly 700 companies and has generated year-over-year economic growth since 2013 of 15%, according to a study by Accelerate Okanagan

These are remarkable achievements, considering the rapidity of the growth. However, growth spurts are not without challenges and some local tech entrepreneurs are concerned about the potential for poaching of talent by bigger firms, leading to wage inflation. As well, a tech-fueled real estate boom in certain areas is putting affordability out of reach for many.

On balance, most would agree the contribution to the diversification of our economy is good for the city, the country and good for Canadian investors with direct and indirect investments relating to the sector. After all, in the modern economy, every business is a technology business.

In addition to direct investment opportunities in public technology firms, there are also opportunities in the non-public investment space, where Newport is active. As one example, one of the private debt managers in our stable has specialized expertise in providing secured growth lending to the tech sector, including digital media and communications, e-commerce and business services software and cyber security business. This is a way to participate, and without the daily pricing volatility of public market exposure.

Newport has also been looking to capitalize on the strong labour market growth in Toronto and its related benefits to real estate by participating in two real estate investments in 2018 increasing our exposure to both apartment buildings and mixed-use real estate development across the GTA.

* NBF Economics and Strategy (data via CBRE and OECD)