Avison Young releases its First Quarter 2017 GTA Office Market Report
TORONTO, April 20, 2017 /CNW/ - The Greater Toronto Area (GTA) office leasing market can best be described as a tale of two distinct markets: the robust and landlord-favouring Downtown and Midtown markets – with historically low vacancy, and the inconsistent and tenant-favouring suburbs – plagued by double-digit vacancy. Despite an ongoing spread in relative performance, there is a similarity: continued development across the region.
These are some of the key trends noted in Avison Young's First Quarter 2017 Greater Toronto Area Office Market Report, released today.
According to the report, while ample space options are available for suburban tenants at different price points, such is not the case Downtown. The GTA's overall availability rate declined a modest 10 basis points (bps) from year-end 2016 to close the first quarter of 2017 at 11%, but is down 70 bps year-over-year. Overall vacancy trended lower, falling 40 bps quarter-over-quarter and 90 bps year-over-year to finish the first quarter of 2017 at 7.3%. First-quarter completions comprised almost 558,000 square feet (sf) with 88% preleased.
"Although the GTA's office market has experienced almost 14 msf 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," comments Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young.
Argeropoulos continues: "The recent announcements, firstly by Cadillac Fairview and the Ontario Pension Board to start construction of an 879,000-sf office tower at 16 York St. – without a lead tenant, a bold move – and secondly by Ivanhoé Cambridge and Hines for the phased Bay Park Centre development comprising 2.9 msf with CIBC as the anchor for up to 1.75 msf, were defining moments for Toronto's leasing marketplace. These two announcements have removed some of the uncertainty from the equation, and tenants now have viable options to contemplate, with specific delivery dates in place. The current Downtown development cycle (2014 to 2017) will give way to the next, which will span from 2018 to 2023. This certainty will take away some of the guesswork as tenants evaluate their future options."
"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."
Following these major announcements, the total amount of space under construction in the Downtown market stands at 6.3 msf with 49% preleased.
The report goes on to say that the GTA's suburban market registered rising occupancy levels with notable gains in Toronto West (mainly class A) and Toronto East (class B) 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% and 11.3%, respectively.
Argeropoulos concludes: "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. 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."
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