Toronto’s office market is brushing off the remaining signs of recession as vacancy rates started to descend, especially in the downtown core according to Colliers International’s Semi-Annual Greater Toronto Area (GTA) Office & Industrial Market Reports and Forecast. The GTA’s average vacancy rate inched down over the past six months to 6.4 per cent with the downtown and mid-town areas recording lower vacancy rates at 5.7 per cent and 4.8 per cent respectively. The availability rate in the downtown core also decreased from 10.3 per cent at its peak, measured at the end of 2009, to a pre-recession level of 9.1 per cent.
“Toronto’s skyline has been changing dramatically. The city waited nearly 14 years for a new tower and now we have three new office buildings already occupied while others will be coming up on the horizon,” says John Arnoldi, managing director with Colliers International in Toronto. “This, more than anything, signals the resiliency of the market which is expected to provide development opportunities for landlords over the coming years.”
According to Colliers International’s forecast, which is based on the correlation between office market metrics and various economic indicators, the average asking net rental rate is expected to climb to $16.31 from its current level at $16.08, with the average vacancy rate dropping by 0.3 per cent to 6.1 per cent by the end of the year.
The growing demand for Class AAA and LEED certified premises, coupled with limited availability of new space in downtown and mid-market areas, is driving tenants to look for alternatives such as subleases, putting pressure on landlords to invest in retrofits. In the past six months, the sublease availability rate – the percentage of available sublease space to total available space – grew almost three per cent from 13.7 per cent to 16.6 per cent.
Arnoldi adds, “The spike in the relative amount of sublease space in comparison to direct space is another indicator of a tight office market, and also acts as a relief valve for demand. Colliers expects activity in the sublease market to remain vigorous while a pipeline of new supply is being built.”
The GTA Industrial Market
The GTA industrial real estate market also experienced a rebound both in terms of deal activity and market performance. More than 16 million square feet of industrial space was sold over the past six months, almost the equivalent to the total transaction volume of 2009. At the same time, the GTA’s availability rate has been trending downwards from 5.8 per cent at the end of 2010 to 5.4 per cent in the first quarter of this year.
Scott Addison, vice president of Eastern Canada notes, “Increasing construction costs, escalating development charges, limited speculative new supply, as well as increased operating and transportation costs due to soaring gas prices all contribute to higher pressure on companies to remain close to the GTA. Over the mid- and long-term, we expect GTA rent to increase to $6.50 per square foot for new, modern facilities which is anticipated to eventually lead to new industrial development in 2012.”