Just a few short years ago, real estate experts were warning that Toronto was building far too much office space downtown, but observers are changing their tune now that the latest rental figures show the city has the lowest office vacancy rate of any major centre on the continent.

Paul Morassutti was one of those experts. The vice-president and executive managing director with real estate brokerage giant CBRE admits even he was way off on that forecast and he's happy to be proven wrong.

"Admittedly, I was one of the nervous ones and if I had to point to one single change ... demand for space has simply been broader and deeper than anyone would have anticipated," he says.

On CBC Radio's Metro Morning Thursday, Morassutti outlined why he thinks Toronto's downtown office vacancy rate has dropped below five per cent, ahead of San Francisco, mid-town Manhattan and Boston as the lowest in North America, according to figures from his company which is the world's largest commercial service provider selling and leasing real estate.

Vice-president and executive managing director of real estate brokerage CBRE, Paul Morassutti says even he didn't predict this much demand for Toronto office space. (CBC)

In fact, the downtown vacancy has been falling over the last three years, Morasutti says, despite the more than 4.4 million square feet of new office space that's been built in the core over the same period, making the business rental market here even tighter than midtown Manhattan's.

"Since 2007, we've built almost 8 million square feet in downtown Toronto, an incredible surge of development activity and there was legitimate nervousness about whether all the demand was there to meet all those new buildings," says Morassutti. "There was a concern that perhaps developers had gotten out in front of the demand a little bit, and what we're finding is that isn't the case."

Why? Morassutti says three main factors are playing a role in the red hot commercial real estate boom in Toronto's downtown core.

"Wave" of millennials moving downtown

Young people are flocking downtown, buying units in all those condo buildings sprouting up in and around the core, Morasutti says.

"We had an entire demographic of millennials who really wanted to work and live in downtown Toronto and the tenants and the office developers followed that wave."

They want to be close to all the amenities the city centre has to offer: the restaurants, the galleries, museums, concert halls and clubs. They would rather walk or cycle to work than battle the GTA's notorious traffic every day driving in from the suburbs.

Morassutti says businesses want to attract the best young talent they can find — talent that increasingly is living, working and playing in the city's core. And to do that, he says, companies have to move downtown.

Upward, not outward

Both the city and the province have implemented measures to try to get Toronto to grow upward rather than outward, Morassutti says.

About a decade ago, the province established the green belt, a rural buffer zone aimed at making it harder for the GTA to continue expanding in a frenzy of suburban sprawl. That in turn made it more expensive for developers to build residential and office space in the outer 'burbs.

"The green belt legislation has had a bigger effect on the development of everything in Toronto over the last decade than anything else," Morassutti says.

Meanwhile, over the same period, the City of Toronto has pursued a policy of "intensification." That means more high-rise condos driving up population density levels in formerly low-rise parts of the city. Those condos mean more people living downtown in areas that were formerly industrial areas, like the waterfront.

Morassutti says the city has also made an effort to build up the city's central business district to provide jobs for all those new residents, including in the so-called "south core," which has seen much of the railway lands south of Front Street turn into a whole new thicket of commercial high-rises.

Seeking a safe haven

And finally, Morassutti says, jittery real estate and business investors around the world are seeing all the same news stories everyone else is seeing. On their TVs, PCs and smartphones they see deadly attacks in European cities like Paris, Nice and Brussels, war in Syria and Iraq, the Brexit vote in Britain, the slowing economy in China and growing unrest in the streets of American cities as the presidential election looms in the United States.

Morassutti says those investors see Toronto, and Canada, as a safe haven with a stable government, good services and a high standard of living — in other words, a good place to put their money and locate businesses.

Morassutti says while Vancouver makes headlines as a destination for Chinese investors — to the tune of $1.4 billion last year in commercial real estate —Toronto is just as attractive to foreign investors. In fact, last year a building at 70 York Street in downtown Toronto was the first Class-A office tower in Toronto to be purchased by a Chinese investor, the Anbang Group, for $110 million.

"It's evidence," says Morassutti, "of the amount of capital in China that wants to find a safe haven - what we call flight capital. They want to invest in assets they consider safe and stable and Canada ranks really well on that scale."