Toronto’s office market still waiting for economic recovery
Although the Canadian economy is on the path to recovery, the impact of the recession still lingers on Toronto’s office market according to Colliers International’s Winter 2010 Semi-annual Office & Industrial Market Reports and Forecast. Attributed to weak demand and an influx of new office space that came into the market, the office vacancy rate in the GTA continued its upward trend reaching 6.1 per cent, or 11.3 million square feet at of the end of 2009. This represents an increase of 20 per cent in vacancy levels compared to 2008.
Against this economic backdrop, the Average Asking Net Rent in Toronto’s office market maintained its downward trend, dropping by more than nine per cent from $17.83 per square foot in Q4 of 2008 to $16.20 per square foot at of the end of 2009. Colliers’ analysis and forecast for 2010 calls for a further, yet moderate decline in Average Asking Net Rent to the level of $16.00 per square foot as the vacancy rate is expected to peak at 6.9 per cent. These trends are expected to reverse in 2011.
“Historically there has been a lag between economic recovery and its impact on the GTA office market, however improvements in market conditions are imminent,” says John Arnoldi, Managing Director with Colliers International in Toronto. “While in some market nodes there is still disparity between landlord and tenant expectations, we’ve observed that this gap is narrowing and expect this trend to carry on in 2010.”
The challenging economic realities of 2009 have also affected the sub-lease market in the GTA. The growing number of companies that have been looking for ways to reduce overhead and utilize unused office space drove the GTA sublease market to expand by 48 per cent compared to the end of 2008, now surpassing 1.1 million square feet or 10 per cent of total vacancy.
“What’s interesting to note is that in the latter half of 2009, the amount of vacant sublet space actually decreased by three percent from early year increases, showing signs of potential recovery,” adds Arnoldi.
· Leasing activity in the GTA’s industrial market remained low in 2009 with an availability rate of 6.3 per cent (45.5 million square feet). This high level of vacant space hasn’t been recorded since 1997.
· In 2010, GTA’s industrial markets will add 2.3 million square feet of new supply scheduled to be completed, below the annual average of 7.3 million square feet per year, over the last ten years.
· Industrial Average Asking Net Rents continue to drop between the end of 2008 and 2009, decreasing by 15 per cent as landlords align themselves with market expectations.
· The office vacancy rate in downtown Toronto grew from 4.5 per cent in 2008 to 5.3 per cent at the end of 2009. Asking Net Rent dropped by more than $3 per square foot to $21.38.