In its Real Estate Market Study, Newmark Knight Frank Devencore reported that high tenant demand for the new building inventory in Toronto’s Downtown District is bringing renewed vitality to the city’s corporate real estate market. In the first two quarters of 2010, approximately 1.4 million square feet was absorbed, outstripping even the more optimistic predictions that real estate analysts made at the beginning of this year. Combined Class “A” and Class “B” vacancy rates in Toronto’s Downtown District currently stand at 6.8 per cent, leaving 4.1 million square feet of space vacant. Outside of the city core leasing activity has been relatively stagnant over the past six months, and it will likely take some time before these corridors see occupancy rates return to pre-recession levels.
“The extent of the current demand for the new breed of office space downtown Toronto is significant enough to raise the possibility of more new office development in the near future,” said Allan Schaffer, president/Broker of Record of Devencore Realties Corporation Canada Limited, Brokerage. “Further, this flight to state-of-the-art Class “A” product will see vacancy rates at unusually high levels in some older Class “A” buildings. Tenants that carefully research the full range of market opportunities will secure the best deals.”
NKF Devencore’s study also notes that the boom in downtown condominium construction that has taken place over the past decade should support the long-term stability and growth of the downtown office market. “As more and more of our skilled workforce moves into Toronto, there is an increasing competitive advantage for employers who wish to attract and retain the best and the brightest to locate their organizations downtown as well,” Schaffer added. “Corporations that may once have targeted lower-cost suburban office parks now seriously considering office space in close proximity to the young professionals and families who have made Toronto their home. As a result, we feel that the downtown office market will be stable over the long term and will continue to expand, driven by corporate tenant and employee demand and supported by blue-chip landlords.”
Across the country, the overall Class “A” and Class “B” vacancy rate stood at 7.1 per cent at the end of Q2 2010, up approximately one per cent from mid-2009. It should be noted, however, that the total inventory of office space in Canada’s major cities increased by nearly 6.5 million square feet, or approximately three per cent, over the same period. NKF Devencore expects that the positive space absorption that has occurred over the past year should continue in the months ahead as companies consider implementing expansion programs that were deferred in 2008 and 2009.