Office vacancy rates have risen across Canada during 2015, along with the addition of new development—more than four million square feet of office space over the last twelve months.
According to Newmark Knight Frank Devencore’s 2015 Real Estate National Office Market Report, which spotlights the Greater Toronto Area (GTA), class-A and class-B office vacancy has spiked 6.8 per cent in downtown Toronto in the first half of 2015. Meanwhile, more than 2.5 million square feet of new office inventory has entered this market over the past year.
“Tenant demand for this class of space has remained very strong,” adds Allan Schaffer, president and broker of record of Devencore Realties Corporation Canada Limited, Brokerage. “The financial services, hi-tech and entertainment sectors are driving much of the demand.”
As the downtown core grows, more development opportunities are expanding east and west of the financial district, with projects such as the 500,000-square-foot LEED Gold Globe and Mail Centre and the 300,000-square-foot QRC West at 134 Peter Street, a combination of a new tower and modernized historic building.
David Gerofsky, president and chief executive officer of First Gulf, says that tenants are flocking to the eastern edges of the financial core due to lower rental rates and the close proximity to downtown, transportation and modern amenities. Meanwhile, President and CEO of Allied Properties Michael Emory, says the western end is ripe with opportunities because tenants are now moving back from the suburbs, financial industries are expanding and the creative class is demanding older, retrofitted spaces.
High-quality office space remains a priority for tenants as evidenced in the GTA West market, particularly in four-decade-old Airport East area buildings.
“A flight to quality characterizes the market and clearly favours the newer buildings that conform to LEED standards,” adds Rob Renaud, senior vice-president and managing principal and broker of Record at Devencore Realties Corporation (Toronto West) Ltd., Brokerage. “Over one million square feet of space is currently being built, primarily in the ACC, Meadowvale and Oakville areas. As a result, landlords managing the older inventory must compete more aggressively to secure tenants.”
More renovations to older class-A buildings are expected as premium tenants will see options will grow. About five million square feet of high-quality office space is coming to market in the next few years. Meanwhile, options for creative-class tenants in the eastern and western periphery are forecasted to remain tight until new projects are delivered.