The Colliers International Q1-2015 Report for the country’s largest marketplace shows continuing strength in downtown Toronto’s office market and continued demand for warehouse and distribution space to support growing Canadian exports.
Greater Toronto Office Market
Despite 2.7 million square feet of office space coming on-stream downtown during the last calendar year, the Greater Toronto Market experienced 432,300 square feet of positive absorption in Q1-2015, occurring primarily in the downtown core.
Downtown vacancy rates declined to just 2.7 per cent in Q1 and will likely remain low throughout 2015, because of high demand for space and a limited new supply coming to market.
The GTA office market continues to be one of the largest in North America, with total office inventory growing to more than 198.5 million square feet in Q1, with a vacancy rate decreasing slightly to 5.3 per cent during the first quarter.
The difference in competition for office space downtown compared to the rest of Toronto has led to a growing disparity in net and gross rental rates. On average, Class “A” downtown net rents are $16-$20 more per square foot, while gross rents are approximately $20-$30 more.
The popularity of open office space designed buildings abutting Toronto’s downtown core is continuing. “The attractiveness of renovated warehouse space turned into chic office space is especially high amongst creative agencies and technology companies, who attract younger employees,” said John Arnoldi, Executive Managing Director, Toronto Brokerage, Colliers International.
“Brick and Beam space, primarily found in the Entertainment District and Downtown West, is commanding gross rents in the $40 range, attesting to the appeal of these unique buildings,” he added.
Beyond downtown, there was minimal movement throughout Toronto as vacancy rates were virtually unchanged in markets located outside the central core. York, Durham, Peel and Halton Region experienced an increase in overall vacancy rate in Q1, and with approximately one million square feet of office space currently under construction within these markets, it is likely that vacancy rates will continue to increase during 2015.
Greater Toronto Industrial Market
Although the retail industry had a rough start this year with top chains like Target, Suncor, Mexx, Sony, Future Shop and others downsizing, closing, or leaving the country, the upside is the continued demand for warehousing and distribution space to support retailers aggressively pushing into e-commerce.
During Q1-2015, more than 1.6 million square feet of industrial property was absorbed, the majority of which was modern, big block properties of more than 200,000 square feet, specifically in the GTA West market.
“With the strengthening US economy, there are positive forecasts that the volume of Canadian exports will improve and lead to growth in the manufacturing sector,” Peter Garrigan, Vice President, Business Development, Colliers International. “However, properties 50,000 square feet and below are preferred by manufacturers due to lower development costs compared to larger properties, and the GTA is not ready to accommodate growth in this manufacturing sector due to the current limited supply of this size asset class,” he added.