The office market in the Greater Toronto Area (GTA) exhibited robust activity, especially in the third quarter of the year, and seems to be insulated from the weak U.S. economy for the time being, according to Colliers International’s Fall Semi-Annual GTA Office & Industrial Market Reports. The average vacancy rate dipped to 5.6 per cent versus 6.4 per cent six months ago, marking a return towards pre-recession levels. With only 5.6 per cent of GTA office space physically vacant and available space-defined as vacant and/or occupied but becoming available-moving below the ten year average of 10 per cent, Toronto is considered a healthy market, especially in the context of comparable American cities.
Not surprisingly, Class A space across the GTA continues to attract the most attention as tenants seek better quality product with suppressed pricing, stemming more from economic uncertainty than market fundamentals. The strongest performing markets in 2011 thus far include Class A space in Midtown Toronto, Downtown Toronto, and GTA North, which contains Markham, Richmond Hill and Vaughan.
“Despite the economic hardship we’re seeing south of the border, occupants in GTA office markets are demonstrating a discernible sense of resilience by comparison,” says John Arnoldi, Managing Director with Colliers International in Toronto. “Not only has the GTA market endured the current state of economic uncertainty, but it has also significantly outperformed historic averages.”
According to the report, the Downtown market has demonstrated substantial office demand and continues to expand to the south and east, supported by new office development and spurred on by the continued impressive growth of the condominium market.
Arnoldi says, “Tenants like Corus Entertainment, PriceWaterhouseCoopers and CI Investments are reinventing themselves by relocating from Toronto’s conventional office districts, including the traditional financial core, to areas on the outskirts of the downtown core which offer organizations the opportunity to occupy newly constructed, state of the art buildings, and design flexible new work environments that cater to their culture and employee preferences. This underscores the notion that the office landscape in Toronto is surely experiencing a renaissance driven by changes in workforce demographics, and we expect this transformation to continue.”
Looking over the horizon, the GTA will experience positive, but slower economic growth in the next 12-24 months according to the Conference Board of Canada. With this in mind, Colliers anticipates that when combined with global economic conditions and uncertainty, office demand will be affected but market fundamentals will remain balanced. According to Colliers International’s forecast, which is based on the correlation between office market metrics and various economic indicators, average asking net rental rates are expected to increase from $15.77 to $16.27 per square foot by Q3 2012, with the average vacancy rate dropping from 5.6 to 5.0 per cent by Q3 of 2012.