Available office space in the Greater Toronto Area declined during the first quarter of 2017, with record low vacancy setting the ground for a new development cycle.
According to Avison Young’s First Quarter 2017 Greater Toronto Area Office Market Report, overall availability is down 70 basis points (bps) year-over-year and vacancy is fell lower at 90 bps. About 558,000 square feet of space was completed overall this quarter, with 88 per cent preleased.
“Although the GTA’s office market has experienced almost 14 million square feet of new development so far this decade – driven largely by workplace strategy and consolidation – demand continues to outpace new supply, and nowhere is this trend more apparent than in Toronto’s growing downtown market,” says Bill Argeropoulos, principal and practice leader, research (Canada) for Avison Young.
Downtown and Midtown Markets
Two major announcements during Q1 have pushed the amount of construction in the downtown market to 6.3 million square feet, with 49 per cent preleased.
Cadillac Fairview and the Ontario Pension Board made a “bold move,” beginning construction of an 879,000-square-foot office tower at 16 York Street without a lead tenant.
Another Q1 announcement that “removes uncertainty” and offers tenants more “viable options,” as Argeropoulos states, is the Bay Park Centre phased development, a partnership between Ivanhoé Cambridge and Hines that will see the completion of a 2.9-million-square-foot tower, with CIBC taking 1.75 million square feet as anchor tenant.
“While some landlords will feel the effects more than others, many tenants will see CIBC’s transaction as an opportunity to secure premises in buildings that the bank is set to vacate,” notes Avison Young Principal Robert Armstrong in Toronto. “Given the amount of lead time, the market will have plenty of opportunity to deal with this pending backfill space.”
The GTA’s suburban market recorded rising occupancy levels. Notable gains in Toronto West (mainly class A) and Toronto East (class B) is offsetting losses in Toronto North (class A).
As a result, overall suburban availability and vacancy retreated 20 bps and 40 bps quarter-over-quarter to close the first quarter at 14.8 per cent and 11.3 per cent, respectively.
“While the suburbs are marching to the beat of a different drum, they have still enjoyed robust development activity during this decade, accounting for half of the new office product completed in the GTA,” adds Argeropoulos. “Both downtown and suburban markets continue to focus increasingly on development oriented around current and future transportation hubs, in line with evolving workplace and city-building trends.”