- Premium location and smaller footprints to dictate office market trend in the coming years
- Migration of tenants from suburbs to downtown may cause market imbalance
- Industrial market benefits from retail resurgence
Toronto, April 17, 2014 – Toronto’s office market continued to thrive during the first quarter of 2014, especially in the downtown core area according to Colliers International’s GTA report released today. The average vacancy rate across the GTA dropped by two basis points to 5.8 percent quarter-over-quarter, while the average asking net rent inched upward from $18.48 per square foot at the end of 2013 to $18.60 per square foot during the first three months of the year. However, the Colliers report forecasts a possible reverse trend in vacancy rates in the coming years as tenants start shifting their focus and demand to premium location over office size, a trend that is increasingly gaining ground in the city.
“Our research shows the emergence of a few trends that have the potential to re-shape the future of the GTA’s office market,” says John Arnoldi, executive managing director, Toronto Region with Colliers International. “Firstly, the migration of suburbs and uptown tenants south along public transportation lines, coupled with demand for smaller parcels of office space in premium locations, are likely to push vacancy rates in other sub-markets upwards. Additionally, there is a pipeline of 5.4 million square feet of office space under construction in the GTA.”
GTA Office Market Trends and Forecast
The downtown core has been a strong performer during the first quarter of the year. Activity was fueled by financial, insurance and tech tenants looking to upgrade to newer and more efficient space. Vacancy rates in this sub-market fell below four percent (3.8 percent down from 4.1 percent) for the relevant quarter, especially in the downtown west area (2 percent in Q1 2014, down from 3.6 percent in Q4 2013). However, as new supply is expected to become available, these low vacancy rates are expected to rise.
“The big question mark that is lingering over the GTA office market stems from the origins that will absorb the new supply of space. A balanced absorption from various markets across the GTA is not likely going to significantly affect market fundamentals and performance over the long-run. However as an example, an exodus of a large number of tenants from select markets into downtown may cause a spike in vacancy rates elsewhere and stimulate market imbalance,” adds John Arnoldi.
GTA's Industrial Market
A combination of macro-economic conditions such as the weaker loonie and the recovery of the U.S. economy, as well as resurgence in retail activity in Canada, are all positive indicators for strong industrial market performance in the GTA. According to the Colliers industrial report, the industrial availability rate in the GTA (currently at 3.6 percent) is expected to slide further due to the increased demand in logistics and warehouse facilities, specifically in GTA West. Peel region’s increase of development charges did not seem to affect new construction and expected demand for industrial space, most notably in Brampton and Mississauga, which represent nearly 80 percent of industrial projects under construction.
“The resurgence of retail activity and the continued entrance of big U.S. retailers into Canada drive the demand for logistic and warehousing hubs,” says Ken Norris executive managing director with Colliers International. “The proximity to Pearson and Hamilton airports, along with access to major highways, is a valuable asset developers, investors and tenants appreciate.”
GTA Market Trends and Forecast
> Download full office report in Market Insights section.
> Download full industrial report in Market Insights section.