The fourth quarter of 2013 ended with downtown Toronto office sector seeing its poorest results since 2003, according to a new report from Avison Young.
The study of 10 streets in downtown Toronto showed more space returning to the market than was leased in the quarter. Downtown Toronto is also awaiting a wave of new developments, which will further allow tenants to search the market for the most beneficial lease terms.
Conducted at the end of January 2014, the study looked at 140 existing and under-construction office buildings located on downtown Toronto’s prime streets.
This list consists of the north-south University Avenue, York and Yonge Streets, as well as the east-west Front, Wellington, King, Adelaide, Richmond and Queen Streets. The study area was mainly focused within the boundaries of the financial core.
Bill Argeropoulos, vice-president and director of research (Canada) for Avison Young notes that although asking or advertised rental rates are important to potential tenants, there are other elements that influence the final price they are actually willing to pay.
“Knowing where to look for future as well as current opportunities for premises in the marketplace can give tenants additional leverage,” he says. “Given the soft market conditions we are entering, both landlords’ and tenants’ negotiating prowess will certainly be tested as market dynamics shift.”
The survey found that only three streets — Yonge, Richmond and Wellington — outperformed the quarter’s overall availability rate of 10.1 per cent. Yonge and Richmond Streets were also home to the lowest availability rates for all building classes at seven and eight per cent, respectively.
As a result of new buildings currently under construction, York and Adelaide Streets had the highest availability rates at 26 and 24 per cent, respectively. 1 York St., in the South Core area, accounts for 82 per cent of all available space on the street. Meanwhile, the under-construction Bay-Adelaide Centre East Tower and Ernst & Young Tower represent 80 per cent of Adelaide’s vacancies.
“Despite the high availability figures for these new developments, transactions are underway in some of them that will take up much of the remaining space — emphasizing the importance of exploring the market early in the real estate decision-making process,” Argeropoulos says.
