Despite signs the Greater Toronto Area (GTA) office market is softening, vacancy rates are continuing to drop.

According to Colliers International’s Fall 2013 Toronto Market Report, the GTA office vacancy rate reached a record low of 5.8 per cent, in comparison to 6.3 per cent recorded in fall last year.

Demand for office space has been particularly strong in the city’s downtown core, with the vacancy rate dropping to an all-time low at 3.9 per cent in the third quarter of 2013, compared to 5.1 per cent for the same period last year.

The growth of the financial services sector is a major factor affecting office demand in downtown Toronto. There are currently five spaces in under-construction buildings that are more than 100,000 square feet, compared to three available in built office properties.

Opportunities in the built office properties are a result of Marsh Mercer and RBC pre-leasing space in new builds. Notable projects currently under construction are the Globe and Mail Centre at 251 King St. E., and the E&Y Tower at 100 Adelaide St. W.

As a result of the new development, many tenants are trying to hit the 2016/17 opportunistic windows to renegotiate their leases or make major real estate decisions, the report says. Vacancy is expected to reach the double digits at that time.

The report predicts landlords of current builds will focus on repositioning older assets to compete with new supply by putting capital into retrofits or reducing rental rates.