Tenant demand for new Toronto office market inventory remains strong
In its newest Real Estate Market Study, Newmark Knight Frank Devencore reported that combined Class “A” and Class “B” office vacancy rates in downtown Toronto rose from 4.8 per cent to 5.0 per cent over the course of 2015. Much of the increase was attributable to the new buildings that were added to the total inventory during the year. At the present time there is approximately 5 million square feet under construction or about to break ground and there are no signs of the construction boom easing significantly over the short term. Tenants in the financial services, high tech and media entertainment industries are generating much of the demand.
“It remains to be seen just how much new space the market can absorb,” said Allan Schaffer, president/Broker of Record of Newmark Knight Frank Devencore’s Downtown Toronto office. “There are some new developments that have large blocks of space available and a number of new projects are seeking only relatively minimal pre-leasing commitments before proceeding. Over the longer term, the implications for tenants are very positive as there will be a steady supply of state-of-the-art Class “A” space and abundant leasing opportunities in older Class “A” buildings that have been vacated by tenants relocating into the new towers.”
Additionally, there continues to be strong demand from the creative class for character spaces outside the traditional downtown core as many high tech, entertainment and public relations firms continue to migrate to the downtown east and downtown west areas.
In the GTA West, the combined Class “A” and Class “B” vacancy rate rose from 12.9 per cent to 18.4 per cent in 2015. As the case has been for the past few years, much of the available space is located in the Airport East area along Airport Road where a majority of the inventory is three or four decades old.
“Part of the reason for the high vacancy rate is the new inventory that has been delivered to the market. Approximately 800,000 square feet has been delivered in the GTA West over the past 18 months and another 1 million square feet of developments are currently underway primarily in the Airport Corporate Center, Meadowvale and Oakville areas,” said Rob Renaud, managing principal/Broker of Record at Newmark Knight Frank Devencore’s Toronto West office.
“Demand remains relatively strong for new spaces that conform to LEED standards and have contemporary amenities; as a result, landlords with older inventory are forced to upgrade and market their properties much more aggressively,” Renaud added.
Across the rest of Canada, occupancy trends have generally followed local economic conditions. In Calgary and Edmonton, for example, vacancy rates have risen sharply following the collapse of global oil prices, while most other cities have seen more moderate shifts. It should also be noted that the inventory of downtown office space across the country has expanded considerably. Over 5.3 million square feet has been added over the past two years, and there are major projects underway in most cities that will further augment this expansion.