The economic downturn continues to shift Toronto’s office market further in favour of tenants as vacancy rates advance upwards reaching 5.7 per cent at the end of June 2009. These vacancy rate levels are equivalent to 10.4 million square feet, not seen since late 2007, and are coupled by a 6.4 per cent decline in the Average Asking Net Rent, currently at $17.58 per square foot, down from last year’s peak level of $18.79 in the third quarter of 2008.
According to the Colliers International 2009 Semi-annual Office Market Report and Forecast, the GTA office market is expected to face this challenging economic environment until early 2011 with a further increase in vacancy levels between seven and eight per cent, and a continued decline in Asking Net Rent anticipated to fall below $13 per square foot.
“Softening market fundamentals are a continued reality of the GTA office market. A twelve-year record high unemployment rate and flat GDP growth have already caused higher levels of vacant space in the market, while another increase is expected shortly with the delivery of new office inventory in the downtown and GTA West market,” says John Arnoldi, managing director at Colliers International in Toronto. “While technically it is still a landlord’s market, these factors are putting growing pressure on landlords who have started to implement various strategies and incentives to attract and retain tenants. Tenants looking for space on the other hand, will enjoy better pricing and more space options as the market continues to ease.”
The study also reveals that landlords are not the only ones in a pinch. Squeezed by the economic downturn and staff reductions, a growing number of tenants are pushing unneeded office space back to the market in the form of sublistings. According to the report, GTA’s sublease market has grown by 68 per cent since the third quarter of 2008, representing 1.17 million square feet or 11 per cent of the total vacancy.
While weaker market conditions are forecasted across GTA sub-markets over the next 18 months, downtown and the West-end of the city could be impacted the most. This is due to the large scale of construction projects that are about to inject over five million square feet of new office space. These two markets also present the highest sublet ratio with 15.9 per cent in GTA West and 14 per cent downtown.