GTA remains a tenants’ market but trend expected to reverse next year according to Colliers’ Semi-Annual Office and Industrial Report

Toronto’s office market remains stable with a tenant-favoured sentiment according to Colliers International’s semi-annual GTA office and industrial market report and forecast. The average vacancy rate continues to hover at approximately 6.5 per cent with average asking net rent declining from $16.35 in the first quarter of the year to $16.26 per square foot in the third quarter.

However, as the market absorbs the new supply of office towers and with no major new supply anticipated in the near future, Colliers forecasts a reverse trend towards a landlords’ market in 2011 and beyond. According to the forecast, which is based on the correlation between office market metrics and various economic indicators, average asking net rental rates are expected to climb back to $16.38 by Q3’11 with the average vacancy rate dropping to 6.1 per cent by Q3 of 2011.

John Arnoldi, managing director with Colliers International in Toronto says, “Although the economic recovery and employment numbers have somewhat softened, the GTA office market showed stability in terms of supply and demand and is expected to strengthen over the next eighteen months as demand continues to increase. Tenants who are looking to re-negotiate their leases or upgrade their location should consider their options sooner rather than later.”

The GTA industrial real estate market continues its upward trend, gaining further momentum at a pace that surpassed many expectations. The increase in land cost from $199,600 per acre in 2007 to nearly $300,000 per acre in 2010 is expected to hamper the introduction of new premium space into the market, and over the long run will push lease rates upwards. This, coupled with increased demand for large-bay 28 foot clear height construction that outpaces demand for older, less functional buildings, will lead to interesting push-pull dynamics between tenants and developers. Tenants will be forced to decide between retrofitting their old premises and utilizing build-to-suit options with higher premiums on rents.

“The decline in average asking net rental rates in the third-quarter of the year from $4.72 to $4.63 is temporary and stems from the rise in the availability of older buildings and landlords aligning themselves to the market,” adds Scott Addison, executive vice president, Eastern Canada, with Colliers International. “As tenants will be looking or shifting to newer and more modern premises, Colliers forecasts an increase in rental rates for facilities with clear heights over 28 feet by the first half of 2011.”

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