In its Real Estate Market Study published today, Newmark Knight Frank Devencore reported that the building boom in Toronto’s Downtown District continues unabated, although the amount of sublease space available on the market is climbing. Combined Class “A” and Class “B” vacancy rates in downtown Toronto are approximately 6.0 per cent.
“A new spate of construction projects has been launched over the past 2 years,” said Allan Schaffer, president and Broker of Record of Newmark Knight Frank Devencore’s Toronto office. “Once all of these projects are completed another five million square feet of state-of-the-art office space will be added to the downtown inventory. At the same time, there is an increase in the amount of sublease space coming onto the market, driven by companies that are consolidating their office spaces as well as by downsizings or corporate dissolutions. As a result, space options and negotiating leverage for tenants should continue to improve in the months ahead.”
In Canada’s major cities, the combined Class “A” and Class “B” vacancy rate edged up from 4.5 per cent to 5.9 per cent in 2013. However, construction activity remains strong across the country and new towers are being built in virtually every city. The appetite for this premium space also remains strong. In most instances, space in the new towers, most of which are LEED-certified, is being fairly rapidly leased.
In most of the submarkets outside of Toronto’s downtown core, Class “A” and Class “B” vacancy rates have risen over the past six months.
“In the GTA West, for example, combined Class “A” and Class “B” vacancy rates rose from 12.7 per cent to 14.2 per cent,” said Rob Renaud, senior vice president, managing principal and Broker of Record of Newmark Knight Frank Devencore’s Toronto West office. “Activity continues to be pronounced in Meadowvale where a number of new office towers are being marketed on a pre-lease basis. Space is most abundant in the Airport East area along Airport Road where many of the buildings date from the 1970s and 1980s and have difficulty competing against the more modern and efficient buildings in the area that conform to LEED standards.”
“As tenant options increase in downtown Toronto, the key question now is whether or not the rise in sublease space points to a waning of demand in the marketplace,” Schaffer added. “If this is the case, it remains to be seen what impact this decrease in demand will have on occupancy rates in both the new tower space and the older Class “A” office buildings.”