Greater Toronto Area Moves Toward Its Next Office Development Cycle
The Greater Toronto Area office market is being pushed into its next development cycle by the record-low vacancy rates in downtown, according to Avison Young's Q1 office market report.
Almost 814K SF was absorbed in the GTA in Q1 2017, with most of that in Class-A buildings, Avison Young reports. Downtown continues to be the place that tenants want to be. The downtown overall vacancy rate was 3.3% in Q1.
Low vacancy will be alleviated somewhat when the next two big office projects downtown deliver. Due to the strong market, Cadillac Fairview and the Ontario Pension Board will start construction on the 879K SF 16 York St. without a lead tenant, and Ivanhoé Cambridge and Hines will start on Bay Park Centre, which has CIBC as its anchor in up to 1.75M SF of the 2.9M SF complex.
"These two announcements have removed some of the uncertainty from the equation," Bill Argeropoulos, principal and practice leader of research (Canada) for Avison Young, said in a statement.
That should push downtown out of the current development cycle, which started in 2014, and into the next, which will last from 2018 to 2023, he said.
There is 6.3M SF under construction downtown, with 49% of that pre-leased, Avison Young reports.
In this decade, the GTA office market has had almost 14M SF of new development, Argeropoulos said, but demand continues to outpace supply, especially in downtown.
"Given the amount of lead time, the market will have plenty of opportunity to deal with this pending backfill space," he said.
In Midtown, overall vacancy was 3.5% in the first quarter, and new development is coming in the form of Cresford's 95K SF 59 Hayden Ave. and Urbacon's 24K SF 1128 Yonge St.
The report describes the GTA as two distinct markets.
While the downtown area has historically low vacancy, the suburban areas have double-digit vacancy. There have been some shifts in the suburbs, with rising occupancy gains in Toronto West and Toronto East and losses in Toronto North.
Overall suburban vacancy for Q1 was down 40 basis points from Q4 2016, dropping to 11.3%. That translates to large amounts of space in the suburbs at different price points.
For Q1, suburban markets had about 1M SF of construction, down from a year ago. Suburban markets have had strong development activity during this decade, Argeropoulos said, making up half of the GTA's new office product.
"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," he said.