Demand for office space in Toronto reaches record levels
Demand for office space in the Greater Toronto Area (GTA) and especially in the downtown core continues to be very robust according to the Colliers International’s Quarterly Office Market report. The average vacancy rate across the GTA during the third quarter of the year dropped to a new low of 6.3 per cent, down from 7.2 per cent the previous quarter. Vacancy rate in the Downtown market also continued its downward trend at 5.1 per cent from 5.5 per cent the previous quarter.
The demand for premium office space in the GTA has also led to marked increase in the average asking rent rate. The average asking rental rent rate across the GTA jumped by 13 per cent, now at $17.83 per square foot compared to the same period last year. This brings back rental rates to the pre-recession levels of 2008. Asking rental rates for Class AAA facilities in the downtown core also saw a double digit increase of more than ten per cent at $32.03 per square foot, up from the $28.79 average measured last year.
“Contrary to the perception that the Toronto office market maybe overbuilt, the numbers are telling a different story,” says John Arnoldi, executive managing director, Toronto Region, with Colliers International. “With such low vacancy rates that are expected to drop even further, the pipeline of new inventory and projects that are underway is relatively conservative compared to similar North American cities such as Boston and New York. Additional demand for downtown office space is also going to be fuelled by what we see as the reverse migration trend of businesses relocating back to the core.”
Strong office market performance was also recorded in midtown Toronto where vacancy rate continued to decline to 5.5 per cent over the past quarter. The revitalization of the area as a high-end retail hub and its proximity to the main subway lines, coupled with a competitive rental rate ($16.88 per square foot) spur demand for quality office space and a flurry of real estate activity. The move of Postmedia network to the area, the entrance of Louis Vuitton and the re-development of the old Four Seasons Hotel and other condominium projects are only some examples. Colliers expects vacancy rate in the midtown sub-market to continue its decrease, resulting in slight increases in rental rate, especially as it presents a more cost – competitive alternative for companies that wish to set a base in Toronto.