GTA

GTA office market vacancy ‘poised to climb’

Tuesday, April 21, 2015

Despite the Greater Toronto Area (GTA) office market ending 2014 on a healthy note, results from Avison Young’s Q1 report on the market show 2015 hasn’t started out as well.

According to report author Bill Argeropoulos, principal and practice leader of research (Canada), the GTA office market, particularly downtown Toronto, is expected to face challenges with steady, new development and looming back-fill space. As a result, a vacancy below 10 per cent is poised to increase due to various factors.

Negative absorption has resulted from leasing velocity varying across building classes and markets, which, in turn, could not counter space returning to the market.

The total availability rate sits at 12 per cent and now exceeds the level marked during the economic crisis in 2010. Meanwhile, new supply slowed below the fourth-quarter average.

While an estimated 5.9 million square feet is now under construction, supply outperforms demand by a three-to-one ratio.

Looking at the downtown market, the availability and vacancy rates retreated to 9.6 and 6.5 per cent respectively, while Class A buildings hold the majority of available space.

The report suggests the best tenant opportunities in the next 36 months are related to AAA buildings and Bank towers. Vacancy in these assets is ridged at 4.7 per cent, but has climbed gradually during the development cycle to 14.2 per cent. Space is expected to fill in these prestigious buildings, along with urban intensification, expansions and consolidations.

Larger tenants are now lengthening their leases five years prior to expirations, reducing short-term occupancy costs, potentially dodging rising rental rates and heightening flexibility to house future workplace strategies.

Development

Urban mixed-use properties remain at the forefront, with the launch of Daniels’ $700,000-million Waterfront City of the Arts project in Downtown South. The asset will provide about 322,500 square feet of office space, among other uses.

Yellow Pages leased 110,000 square feet in Downtown East, while Sun Life Financial leased 95,000 square feet in Downtown South, spurring prelease levels in downtown to 75 per cent.

Increased availability and vacancy in the suburbs was mainly a result of Target’s exit from Airport Corporate Centre in Toronto West. About 85,000 square feet could return to Scarborough, with Yellow Pages’ move from 325 Milner Avenue.

Larger suburban spaces are leasing up: McKesson Canada (76,000 square feet), Acklands-Grainger (81,000 square feet) and LexisNexis Canada (41,000 square feet).