I thought I had found the ideal new office. High ceilings, skylights, and fully furnished, it even came with unique, custom photography wallpaper from the previous tenants.
The office was still off-market, and we submitted our offer letter barely an hour after the viewing. Everything was perfect right until we got the call to tell us we’d been outbid by another company — and they were paying 30 percent more for the space.
This type of frustrating experience will be familiar to anyone who has tried to move their team into a new space in San Francisco. The thing is, our experiences in Toronto were almost identical.
In the last couple of months, Cover has moved both our Toronto and San Francisco teams into new offices. Over the past several years, scaling two companies means that I’ve organized 12 office moves in the two cities. When you double in size every six months, you have to stay on the move.
Across these moves, the big change I have seen is that when it comes to finding space for a startup in Toronto, things are getting more competitive and more expensive.
Everything I saw was off-market and, despite getting offer letters in right away, the chances of getting accepted felt increasingly remote.
I expected that SF would be competitive because of the number of companies out there. Toronto, the city where I co-founded my first startup eight years ago, was much more of a surprise.
Part of this is a good news story. More competition stems from the growing number of successful companies.
That said, there are also ways that conditions in Toronto artificially intensify the competition for — and therefore cost of — office space for startups. In this respect, there are things the city could learn from places like San Francisco.
If Toronto can address the following areas, it can truly capitalize on its underlying strengths and thrive as a tech city.
More startup-friendly landlords
Increasing competition for office space in Toronto means that, as in SF, the landlords have most of the leverage — especially if you’re a startup.
The conditions of the leases in the two cities were equally tough. We had to commit to huge upfront payments that amounted to the equivalent of a small business loan. A competitive market becomes even more difficult due to the bias against startups from skeptical landlords.
You can understand the hesitancy to lease spaces to startups if landlords have been burned before. If a tenant goes under, there’s the risk they won’t get paid for the full lease. But this requirement to put more money down, coupled with three to five year lease terms, does make it harder for startups
In this respect, the culture in SF is more friendly towards startups. They’re more aware of the startup model: that you’re going to have this group of people that are not profitable yet, but they’re financially backed and working towards profitability.
By contrast, in Toronto, it didn’t seem that people were warm to the idea of renting to tech startups at all. We definitely lost out on a number of spaces to more established media or marketing companies that had more steady revenue. They essentially vetoed us because we were a tech startup.
This reluctance to rent to startups means that working with a real estate company is a must for their knowledge of the local market. Thankfully, the hesitancy about working with startups doesn’t extend to these companies.
Even though the commission opportunities on relatively small offices aren’t as big, some agencies see the long-term value in providing great service to startups. In our case, Hello Office in SF and Colliers in TO helped us find our current spaces.
Eventually, we were in a position where we could meet the demands and terms of the leases and were lucky to move into two offices that we love. But, for a lot of companies — especially between Seed to Series A — that’s not always possible.
Inventive ways to improve supply
It isn’t just the number of companies that make it increasingly hard for growing startups to find space in Toronto.
The supply of suitable spaces is pretty limited. This isn’t just the availability of enough brick-and-beam type places with a startup look and feel, but places that are the right size for a startup looking to rapidly scale.
It would help to have more spaces that are in that middle ground where it’s not just one or the other — a tiny office or a massive space — but places in the 2,000 to 4,000 square foot range.
What I’ve seen in SF is that there are a number of apartment buildings that have repurposed units to be commercial and residential space to get that loft type vibe even though you’re not in a commercial building. Our previous San Francisco office was a great example of this, it even had a bathtub upstairs.
Make it easier for people to get around
Competition is compounded by the issue of getting into and around Toronto. Transport is not great. Ubers or Lyfts are still very expensive. Toronto was recently ranked the worst city on North America for commute times.
Both Toronto and San Francisco frequently appear in lists of the worst North American cities for congestion but, from my experience at least, the congestion coupled with four months of sub-zero temperatures makes Toronto feel much worse for commuting.
This means companies are competing for the same pockets along Spadina, Bay, and University, near Union station, or connected via the PATH that tend to be more accessible.
In a lot of places, startups have to choose between the hiring advantages of being near transportation or the cost savings of locating somewhere less convenient. The problem seems particularly acute in Toronto where the downtown core with good accessibility is so small.
You can see why co-working spaces such as OneEleven and WeWork are so popular in Toronto. They’re great at meeting this need. They’re turnkey — you can pretty much open your laptop and get going — and they’re right downtown.
Having the co-working option available helped us scale. We pretty much toured all the shared spaces in Toronto before moving into our office. For startups that are looking to stay close to transport links, this course of action is almost unavoidable.
Eventually, of course, almost all startups will want the opportunity to enjoy the chance to shape a unique team culture that moving out of a co-working space creates.
Unfortunately, challenges like increasing competition, unfriendly landlords and lack of supply intensified by limited transport links aren’t going away anytime soon.
Why Toronto will thrive
Despite the headwinds, Toronto is well-positioned to thrive; not as a rival to the Bay Area, but as a satellite of it.
The access to capital and the network in Silicon Valley is just too important.
Cover will always maintain a presence there because of that. I always encourage younger startups that need to raise venture funding that they either have to maintain a presence or to make sure their network is still there.
If you go away then come back and nobody knows you, it’s just going to be a lot more work.
But having a presence in Silicon Valley doesn’t mean every part of the company needs to be there. Many startups are building the way a lot of Y Combinator companies have done with an office in SF and additional remote offices.
This is definitely where Toronto has an edge on the competition. The talent pool here is huge and high quality when compared to other cities, especially for engineering and product teams.
The engineering schools in particular are phenomenal. From interviewing for a range of positions in Toronto and Silicon Valley, I found that the talent was good and often better in Toronto.
This underlying strength means Toronto is going to mature very well as a tech satellite city in the next couple of years.
When we went full-time with Stylekick in 2013, the tech startup scene was very small, but now you see so many companies coming back from the US. They might put their HQ in the states but they’re building in Canada.
We’re already seeing tech salaries increase and that just means there’s more competition. There’s Shopify, Wealthsimple, ROSS, One Local, Drop and so many more.
Tech leaders are coming home
The success of these companies means the need for senior tech talent is growing too.
It used to be that a key area where Silicon Valley had an edge was with more senior hires — access to the people that have scaled teams and witnessed a company grow from a handful of people to hundreds or thousands in a very short time.
Even this is starting to change. I do feel like there are more people that came to the Valley, built their careers, and are transferring back to Canada to start a family, buy a home, and settle down.
It means that while some of the downsides of the growing Toronto tech scene aren’t going away soon, others will surely diminish as the city adjusts and adapts to hosting more startups.
There are challenges, no doubt, but the underlying strengths that Toronto has mean that it has the potential to hold its own against other emerging tech hubs and, in some ways, even San Francisco itself.
The access to a large, vibrant city coupled with the wealth of talent here leaves me confident that we are going to see a pretty big flood of tech companies coming into the city in the coming years.
By Natalie Gray, Co-founder & head of product @ Cover