Re-urbanization of Toronto’s downtown puts pressure on office market

Toronto’s office market continued to exhibit strong performance as demand for office space soared over the past six months, according to Colliers International’s Spring Semi-Annual GTA Office Market Report. Across the GTA, the average vacancy rate continued to decline to 5.1 per cent, down from 5.6 per cent in the fall of 2011, and average asking net rate inched up to $16.12 per square foot from $15.77 per square foot measured at the third quarter of 2011. These indicators, along with the positive net absorption of close to 900,000 square feet, signify that the local office market remains tight.

One of the major contributors to this market condition is the significant growth in office demand in Toronto’s downtown sub-market over the last six months. As a result, the vacancy rate in downtown Toronto decreased to 4.1 per cent, one of the lowest levels recorded in the area since 2008.

“Unlike previous cycles of high-demand for office space generated by strong economy and business performance, this one is also spurred by a demographic shift and inflow of a younger workforce into Toronto from the suburbs and the booming condominium market in the downtown core,” says John Arnoldi, managing director, Toronto Region with Colliers International. “The urbanization and revitalization of the downtown core with a mix of commercial and residential projects is drawing both today’s and tomorrow’s workforce into the area. Employers are taking notice and opting to anchor their operations close to their most valuable assets, where their employees live.”

Some of  the hot-zones in the downtown core that are experiencing a revitalization include Toronto’s downtown east with Coca-Cola’s future office headquarters soon to be moving in and south of the financial core along York Street with ICE condominiums, RBC Waterpark Place and the PATH extension as well as Union Station’s revitalization.

Looking forward over the next 12 months and beyond, Colliers expects the GTA office market to continue experiencing strong economic growth that will put further pressure on tenants who are looking to expand either by relocating or by taking more space in their current locations. According to Colliers International’s forecast, which is based on the correlation between office market metrics and various economic indicators, average asking net rental rates are expected to continue their uptrend from $16.21 to $16.35 per square feet by the first quarter of 2013, with the average vacancy rate to keep dropping from 5.1 to 4.9 per cent by the same time period.

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