GTA office market kicks off 2012 with moderated optimism following strong 2011
Avison Young releases its First Quarter 2012 Greater Toronto Area Office Market Report
TORONTO, April 23, 2012 /CNW/ - Coming off a strong performance in 2011, the Greater Toronto Area (GTA) office market paused in the opening quarter of 2012. The suburban market realized a net gain in occupied space to start the year; however, this growth was countered by losses in the downtown and midtown markets, leaving the overall GTA market in the red. Notwithstanding the lull in activity, especially in downtown Toronto, stakeholders remain confident in the market's fundamentals, as demonstrated by a stable pipeline of tenant mandates and growing level of new construction.
These are some of the key trends noted in Avison Young's First Quarter 2012 Greater Toronto Area Office Market Report, released today.
"The first quarter results are not entirely surprising and somewhat expected, given the market's resilience and better-than-expected performance throughout the recent economic downturn and since then," comments Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.
According to the report, the overall availability rate (which includes space being marketed for lease but not physically vacant) for all building classes in the GTA declined a modest 10 basis points (bps) from 9.8% at year-end 2011 to 9.7% at the end of the first quarter of 2012. This dip compares with an availability rate of 10.3% in the same quarter one year prior and a 10-year average of 10.9%.
In contrast, the overall vacancy rate (physically unoccupied space) across the region increased 30 bps to end the first quarter of 2012 at 7.8%. Despite the uptick in vacancy, it is still 90 bps below the first-quarter 2011 mark of 8.7% and 190 bps below the 10-year average rate of 9.7%.
The suburban market, comprising Toronto North, East and West, combined to outpace the downtown and midtown markets. Although the Toronto North and East markets stumbled to start 2012, strong gains in occupancy were recorded in Toronto West - lifting the suburbs' overall performance into the black. New supply to the market, though, kept the suburban availability and vacancy rates in double-digit territory, currently at 11.9% and 10.3%, respectively.
"As anticipated, the gains in the suburbs, particularly in Toronto West, were largely attributed to Target moving into its new Canadian corporate head office at AeroCentre V in the Airport Corporate Centre (ACC). This represents an injection of vitality into a market that was battered during the recent recession," notes Argeropoulos.
"The Toronto West and ACC markets have been home to many U.S. companies over the years, and some of them became victims of the downturn, returning space to the market. So it's a welcome event to see a major U.S. corporation establishing a new foothold in the GTA."
A successive string of positive results finally turned negative for Toronto's downtown and midtown markets. Midtown closed out the first quarter of 2012 with availability and vacancy rates of 7.7% and 6%, respectively. After falling to a four-year low of 4.9% at year-end 2011, the vacancy rate in downtown Toronto climbed 40 bps to settle at 5.3%. Coincidentally, availability decreased by the same measure, closing the three-month period ending March 31, 2012 at 7.6%.
Argeropoulos continues: "With respect to the downtown market, it was only a matter of time before we saw a slackening in the pace of demand levels, due to the shuffling of tenants among the existing and recently-completed office towers. One quarter does not signal a trend, as Toronto's downtown market is one of the healthiest in North America, characterized by continued low vacancy rates and upward pressure on rents. We continue to see the confidence in the marketplace via a steady pipeline of tenant mandates for various space requirements, as well as a number of new developments that have been - or are about to be - announced."
Heading into the second quarter, the market can best be described as displaying moderated optimism as a new cycle of office development gains momentum.
"Tenants have been, and more than likely will be, drawn from the existing inventory to fill the new towers, similar to the last development cycle. For example, RBC Financial Group and Marsh & McLennan have both been announced as tenants in RBC WaterPark Place and Bremner Tower, respectively, vacating existing premises in other downtown locations. This trend will present challenges for some landlords and opportunities for tenants until the back-fill space is leased. There are still some residual vacancies lingering from the most recent building cycle, and only time will tell how the market will react during this go-round, given the short time gap since the last cycle," concludes Argeropoulos.
Founded in 1978, Avison Young is Canada's largest independently-owned commercial real estate services company. Headquartered in Toronto, Ontario, Avison Young is also the largest Canadian-owned, principal-managed commercial real estate brokerage firm in North America. Comprising more than 900 real estate professionals in 29 offices across Canada and the U.S., the full-service commercial real estate company provides value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-residential properties.
Editors/Real Estate Reporters
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• Bill Argeropoulos, Vice-President and Director of Research, Canada, Avison Young:
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• Mark Fieder, Principal and Managing Director, Ontario, Avison Young:
(416) 673-4051 or cell (416) 706-0505
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