The Greater Toronto Area (GTA) office market reached the midway point of 2018 with mixed second-quarter results.
A new report from Avison Young found that GTA-wide lease transaction activity remained on par with the first quarter, bringing the year to-date tally to more than 4 million square feet (msf ).
The region remains a magnet for technology companies, while the new technological endeavours of existing firms also contribute significantly to demand for space. This bodes well for future occupancy levels, but masked a decline in occupied area during the second quarter, which partly offset first-quarter gains, the report claims.
Meanwhile, a disparity remains between the Downtown/Midtown and suburban office markets in terms of tenant options, rental rates and new construction activity.
Overall availability and vacancy trended lower during the second quarter of 2018, as the scarcity of options for tenants continued to intensify – especially in Downtown and Midtown. At 9.6% (-60 basis points (bps)), the GTA’s availability rate dropped below 10% for the first time in five years. However, the market is much tighter than that, as vacancy declined 30 bps to 6.2% – a level not seen since the fourth quarter of 2008.
On the development front, two new buildings were completed during the second quarter, collectively adding 265,000 square feet (sf ) to the suburban Toronto West market. In the past year, just over 629,000 sf has been added to the GTA market – all in the suburbs. Importantly, the amount of office space under construction across the GTA reached a record-high 8.5 msf as of the second quarter (4.7% of existing inventory / 48% preleased), of which nearly 7.2 msf is located downtown as developers scramble to meet current and future demand.
The Downtown market is hotter than ever as availability and vacancy across all building classes trended lower yet again. Quarter-overquarter, availability dropped another 60 bps to a 17-year low of 5.1%, while vacancy retreated 30 bps to finish the second quarter and first half of 2018 at a historic low of 2.2%.
The big news during the quarter came as Cadillac Fairview and the Investment Management Corporation of Ontario kicked off construction of a new 46-storey, 1.2- msf office tower at 160 Front St. W. in the Financial Core, to be completed by fall 2022.