Avison Young releases its Third Quarter 2013 Greater Toronto Area Office
TORONTO, Oct. 28, 2013 /CNW/ - The Greater Toronto Area (GTA) office
market continues to deliver disappointing results. However, despite
falling occupancy levels and rising availability and vacancy rates to
date, the rental market, though fragmented, remains intact. A
burgeoning sublet market is also raising concerns, having jumped 30% in
the past year to 3.7 million square feet (msf) at the conclusion of the
third quarter of 2013. All of these conditions are transpiring as the
market braces itself for a new wave of office development, starting
later this year and continuing through 2017.
These are some of the key trends noted in Avison Young's Third Quarter 2013 Greater Toronto Area Office Market Report, released today.
"We started the year on a relatively positive note; however, the
momentum that carried us through the 2008 global financial meltdown is
finally subsiding," comments Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young. "It
appears that 2013 may turn out to be one of the least impressive
performances in some time and may signal the end of the recent bull
run. Notwithstanding these results, corporate Canada remains intact
with ample cash on hand to expand its operations, while the development
community is obviously looking beyond the current malaise and
proceeding with some degree of confidence."
According to the third-quarter report, the overall vacancy rate
(physically unoccupied space) in the GTA continues to climb
incrementally, closing the third quarter of 2013 at 8.8% - up 20 basis
points (bps) from the previous quarter and 70 bps from the same quarter
one year prior. More importantly, overall availability (which includes
space being marketed for lease) is significantly higher at 11.4%,
having jumped 90 bps between quarters and up 220 bps from the same
quarter one year earlier. Both metrics are sitting at three-year highs.
The report goes on to observe that the market's softness is clearly
evident in Downtown Toronto. Despite a tight and landlord-favourable
vacancy rate of 5.6% in the third quarter of 2013, the availability
rate was substantially higher at 8.9%. This compares with a rate of
7.6% in the second quarter of 2013 and 6.6% in the third quarter of
2012. These increases are largely attributable to future known tenant
relocations to the new towers underway as well as a noticeable uptick
in sublet space.
The announcements continued regarding new office towers in Downtown
Toronto. On the heels of Oxford Properties' launch of the Ernst & Young
Tower in the second quarter of this year, prominent newspaper publisher
The Globe and Mail (G&M) captured the headlines in the third quarter.
After cancelling plans to build a new corporate headquarters in
Downtown West earlier this year, the G&M quickly secured a new
location, this time in Downtown East. Branded as The Globe and Mail
Centre, the new office tower will be LEED Gold and comprise 500,000
square feet (sf) over 17 storeys when it is completed in mid-2016. The
publisher has leased the top five floors (130,000 sf) of the building,
while developer First Gulf will also be moving its head office to the
tower, raising the prelease level to 40%.
Argeropoulos adds: "This project raises the total office space announced
or under construction in Downtown Toronto to 5.8 msf, with slightly
more than half of that space already preleased and lease deals poised
to climb in the coming months. There was very little down time between
the end of the last development cycle and the start of the current one.
At the start of the previous cycle in 2006, vacancy hovered in the 6.5%
range, while at the start of this one, some five years later, vacancy
was roughly 100 bps lower.
"Although there will be more office development in this cycle (5.8 msf
vs 4.5 msf), the delivery is more spread out rather than the bulk of it
coming in any one year, as it did in 2009. This should cushion any
further turbulence in the marketplace. It's interesting that some
developers are already strategizing for the next phase of development
with deliveries in the 2018 and 2019 time frame."
The report also notes that downtown available sublet space has climbed
525,000 sf in the past year, with the vast majority (422,000 sf) in
class A buildings in the financial core. The effects of this increase
are somewhat ameliorated by the spread of future delivery times. In
all, sublet space as a proportion of total available space is now 20%,
up from 16% one year earlier.
"A subsequent analysis of sublease listings in Toronto's downtown
reveals some interesting facts," continues Argeropoulos. "Class A
sublets in the financial core account for 52% of all available sublet
area downtown, despite representing only 66 of the 157 available
individual spaces (42%). As this implies, class A sublease spaces in
the financial core are also larger, on average, than those in the other
nodes and classes downtown - 9,700 sf compared with 6,400 sf. Across
all of downtown, however, tenants will find a full range of size
options available, from spaces less than 1,000 sf to multi-floor
opportunities in excess of 90,000 sf. The largest number of individual
spaces are small, in the sub-5,000-sf range; while on a length-of-term
basis, the largest number have more than four years remaining."
"Of note, the profile of sub-landlords shows that the uptick in sublease
availability is spread across a range of industries, including banks
and finance, large law and professional services firms, the natural
resources sector, and technology companies. In addition, and contrary
to what might be expected, the buildings where the subleases are
located likewise form a cross-section of downtown inventory, with
recently constructed or renovated buildings represented alongside the
more established towers. Though restrictive, these types of
opportunities cater to start-ups and other price-sensitive
organizations looking for well-located premises in what would otherwise
be unaffordable buildings."
"Corporate downsizing, consolidation and relocations are fuelling the
rise of sublet space not only in Toronto, but in most major markets
across Canada. Toronto's downtown sublet figure pales in comparison to
Downtown Calgary where nearly 50% of the total available space is on
the sublet market."
The report also notes that the suburban market regressed further in the
third quarter; and although vacancy (11.9%) held steady, availability
increased 40 bps to 14.1%. While Toronto North (7.2%) and East (13.7%)
saw marginal changes in availability, Toronto West continued to lose
ground with availability jumping 100 bps to 16.7% - a 10-year high.
Argeropoulos concludes: "The ongoing dynamic in the marketplace has
created a balanced environment where there are significant
opportunities for both tenants and landlords."
Avison Young is the world's fastest-growing commercial real estate
services firm. Headquartered in Toronto, Canada, Avison Young is a
collaborative, global firm owned and operated by its principals.
Founded in 1978, the company comprises 1,300 real estate professionals
in 53 offices, providing value-added, client-centric investment sales,
leasing, advisory, management, financing and mortgage placement
services to owners and occupiers of office, retail, industrial and
∙ Click here to view Avison Young's Third Quarter 2013 GTA Office Market
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• Sherry Quan, National Director of Communications & Media Relations, Avison Young:
604.647.5098; cell: 604.726.0959 firstname.lastname@example.org
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