Leasing activity in the Greater Toronto Area (GTA) office market was slightly muted in the first quarter of 2018.
A new report from Avison Young revealed that a lack of suitable office space, particularly in Downtown and Midtown Toronto, has resulted in a slowing of business.
The report states that although last year’s results will be hard to repeat, “record-low vacancy and rising rents in Downtown and Midtown may pave the way for better results in suburban markets in 2018.”
“Coming off a banner year in 2017, I don’t think we were overly surprised by the market’s somewhat subdued, yet overall positive, first-quarter results,” said Bill Argeropoulos, Principal, Practice Leader, Research (Canada) for Avison Young. “In all, demand continues to outpace new supply, and nowhere is this trend more apparent than in Toronto’s growing Downtown market.”
According to the report, transactions inked in previous quarters translated into rising occupancy levels, with first-quarter 2018 absorption registering 655,000 square feet (sf).
Unlike in previous quarters, the suburban markets collectively outpaced the Downtown and Midtown markets by roughly a two-to-one margin. More than 2.1 million square feet (msf) of lease transactions were concluded market-wide in the first quarter – down from the fourth-quarter 2017 result (and the 2017 quarterly average) of nearly 3 msf. This activity was sufficient to lower the market’s overall availability rate to 10.2%, while overall vacancy finished the first quarter of the year at 6.5%.
“With Downtown vacancy sitting at a record-low 2.5%, it has become an extremely competitive market in which to transact given the scarcity of space in existing product, rising rental rates, and no meaningful relief in terms of new supply until 2020. That’s when 2.5 msf is expected to be completed out of the nearly 6 msf now under construction downtown,” Argeropoulos added. “However, the prelease commitment on that 2.5 msf is 43% and rising. Taking into account the success of recently completed projects, and given the deals that are being negotiated today, this space is certain to be fully preleased by the time it is delivered in 2020. Between now and then, some large-block relief can be found in a few smaller development and redevelopment projects that are in progress and targeting 2019 delivery.”
The report also revealed that, on average, starting face rates for deals in class A Downtown space increased 28% in 2017 compared with 2016 – the largest year-overyear jump since the Great Recession.
