Development may return to Toronto office market

Avison Young’s first quarter 2011 Greater Toronto Area Office Market Report indicates that although availability and vacancy rates remain in double-digit territory in the suburbs, activity in the midtown and downtown markets is robust with demand from a wide spectrum of user groups seeking varying space requirements.
 
“All one has to do is look at the successful lease-up of the newest downtown office developments, currently 93 % leased and climbing,” said Bill Argeropoulos, vice-president and director of research (Canada) for Avison Young.

“What’s even more compelling is that there are now discussions underway that will soon result in the announcement of one, two or even three new office buildings, kick-starting the next development cycle.”
 
Argeropoulos continues: “This is not entirely surprising as the latest developments are now nearly leased up and largely out of play - at least for large tenants - and most of the remaining large-block options, which are concentrated in the pricier class AAA towers, are not garnering the same attention as new construction.”
 
According to the report, the overall availability rate (which includes space being marketed for lease but not physically vacant) in the GTA declined 100 basis points (bps) in the past 12 months to 10.5% in the first quarter of 2011.

By comparison, the overall vacancy rate (physically unoccupied space) across the region is down to 8.9%, having dropped 130 bps over the same period.
 
The GTA suburban market, comprising the North, East and West districts, combined to post an availability rate across all building classes of 12.1%. The West (13.9%) and East (12.2%) suburbs remained the weakest, while the North is the strongest at 6.8%.
 
Compared to the suburbs, the downtown and midtown markets are in much better shape, displaying strong, consistent tenant interest, with availability and vacancy rates firmly in single-digit territory.

Midtown closed out the first quarter of 2011 with availability and vacancy rates of 8.5% and 7.4%, respectively. Downtown saw its overall availability rate drop to a two-year low, presently at 8.9%. Vacancy sits even lower at 6.6% - down 200 bps from one year ago.

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