Availability and vacancy rates in districts and asset classes across the Greater Toronto Area (GTA) office market have lowered as tenant activity and leasing speed from the first quarter “spilled over” into the second quarter, according to report by Avison Young.
“Over the last 12 months, the GTA office leasing market has performed exceptionally well, supported by a continued steady flow of lease transactions, eroding the supply of available space options along the way and altering the landlord-tenant relationship,” said Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.
This has caused the landlord-tenant balance to shift in Toronto’s downtown and midtown districts, the Canada-based real estate company added.
Last month, another real estate company CB Richard Ellis reported that the office vacancy rate in Canada fell to 8.6 percent in the second quarter of this year aided by a sharp rebound in Calgary compared to 9.3 percent in the previous quarter and 10.1 percent in the same period last year.
Meanwhile, Avison Young said that while the GTA office market experienced a 50-basis-points (bps) drop in vacancy between the first and second quarter, office vacancy rate has retreated by some 280 bps over the previous year to close the first half of 2011 at 8.4 percent.
Meanwhile, the availability rate (space marketed for lease but not physically vacant) across the region settled at 10.2 percent.
According to the report, Toronto’s downtown vacancy rate fell by almost half during the past 12 months, reaching the midway point of 2011 at 5.9 percent, while availability is down some 200 bps to 8.5 percent.
In the midtown district, availability and vacancy closed out the first half of the year at 8.2 percent and 7 percent, respectively. Within midtown, the popular Bloor node saw its vacancy rate dip below 6% – its lowest level in three years.
Avison Young Principal Jonathan Pearce said in a statement: “The theme across the board is clearly one of tightening. In both downtown and midtown Toronto (especially the Bloor office node), we are seeing the pendulum swing further in favour of landlords.
“This is being seen not only in the premium AAA asset class, but in the AA, A and B asset classes as well. Exacerbating this further is the very limited availability of large blocks of contiguous space. Moreover, delivery dates of additional/proposed new buildings are too far out to generate any meaningful new supply in the short term.”
“Tenants shopping for space are, in many instances, having to start the process earlier, make decisions faster, and be prepared to compromise more on flexibility. Competitive situations between multiple tenants with interest in the same premises, while not yet commonplace, are definitely occurring and becoming more frequent,” he added.
Argeropoulos said: “Given the rapid improvement in the marketplace, new office development may be the only viable – in other words, economic – option for some of the dozen or so large tenants currently in play, or about to enter the market in downtown Toronto.
“In all, there are plans in place to deliver more than 9 million square feet of office space, spread over a dozen projects. Interestingly, more than two-thirds of the proposed office area is outside the traditional confines of the Financial Core – in the already active Downtown South market and areas east of the Core and along the waterfront.”
Argeropoulos went on to say: “Of course, not all of the developments will go ahead at the same time. Some are more advanced in their planning process and/or negotiations in securing a lead tenant than others.”
Argeropoulos noted that there were no official announcements made. However, specific projects have come up for discussion.
“The names/projects you often hear include GWL Realty Advisors’ Southcore Financial Centre (Bremner Tower), Oxford Properties’ Waterpark Place (Phase 3) and Queen-Richmond Centre West by Allied Properties REIT, to name a few.”