Avison Young releases its Second Quarter 2014 GTA Office Market Report
TORONTO, July 14, 2014 /CNW/ - After a poor start to 2014, the Greater Toronto Area (GTA) office market experienced higher leasing velocity in the second quarter as occupied area increased in the Downtown, Midtown and Toronto West markets. However, the Toronto East and North markets did not keep pace as more space returned to the market than was leased, spoiling what would otherwise have been a positive quarterly result.
These are some of the key trends noted in Avison Young's Second Quarter 2014 Greater Toronto Area Office Market Report, released today.
The overall vacancy rate (physically unoccupied area) across the GTA's 1,408 office buildings comprising nearly 172 million square feet (msf) remained at 9.4% at the end of the second quarter of 2014, while the overall availability rate (space marketed for lease) increased only 10 basis points (bps) from the first quarter to finish at 12.1%.
"The uptick in leasing activity is a welcomed respite, especially in Downtown Toronto, as the market prepares for the first wave of new development scheduled for completion starting this fall and continuing through to 2017," comments Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.
As noted in the second-quarter report, transactions in the Downtown marketplace were centred on class A and B buildings along the University Avenue, Bay Street and Front Street West corridors, spanning the Financial Core and Downtown North and West office nodes. Well-priced large blocks of space, either currently vacant or soon to be vacated by some of the tenants relocating to new developments, are highly sought after.
"Tour activity for large blocks of space has been especially brisk among tenants seeking occupancy over the next 12 to 18 months, as there are several opportunities meeting those criteria which are gradually being taken up," adds Argeropoulos. "With numerous options available, it is not surprising that tenants are gravitating to the more cost-effective opportunities first. As these fill up, it will be interesting to see what price point the remaining large blocks housed in the traditional core towers command."
While transactions have been taking place in the existing building stock, no large deals were announced during the second quarter in the seven towers currently under construction downtown. The first two towers, namely RBC Waterpark Place and Bremner Tower, which represent a combined total of approximately 1.5 msf, are collectively 70% preleased; however, transactions are underway that could see one or both fully leased by the time they open their doors in fall 2014. The remaining 3.5 msf underway, scheduled for completion between 2015 and 2017, is roughly 50% preleased.
"The banks have been particularly busy on the transaction front, leasing upwards of 300,000 square feet (sf), of both direct and sublet space downtown, for various lease terms. While TD Bank is reportedly out with a big requirement, others that haven't been as active on the big-deal front are positioning themselves to follow suit. I wouldn't be surprised if one of these banks kicks off the next major tower downtown," says Argeropoulos.
Workplace strategies continue to shape the future footprint of corporate users and impact the market landscape. In Midtown, for example, Manulife Financial will free up more than 202,000 sf by rationalizing its space usage starting in 2015, leading to increased availability in the Bloor node and Midtown district. This situation follows Manulife's decision to return 140,000 sf to the sublet market at 2 Queen Street East in the Financial Core in the closing months of 2013.
The report goes on to say that Toronto West had another strong showing with the majority of transactions completed in class A buildings, leading to a decline in the overall suburban availability (16.1%, -10 bps) and vacancy (13.7%, -20 bps) rates during the second quarter. Unfortunately, the Toronto East and North markets experienced a notable rise in availability and vacancy (80 to 100 bps) from the previous quarter, leaving the overall suburban market in negative territory at the midway point of 2014.
Argeropoulos concludes: "As we enter the peak summer vacation period when real estate decisions are typically deferred until the fall, it's difficult to say, with any certainty, whether or not the recent leasing momentum represents a turning point or can be sustained in coming quarters. The question is whether there is enough growth in the deal pipeline to tilt absorption in the overall market from negative – as seen in the last six quarters – into positive territory by year-end."
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 1,500 real estate professionals in 58 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 multi-family properties.
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