The Greater Toronto Area will see approximately 2.2 million square feet of new office space by the end of the year, but this would not be nearly enough to accommodate the robust hunger for the asset class.
According to a new market analysis by Marcus & Millichap, a significant portion of this demand is stemming from the region’s tech sector.
The rapid growth of this segment, along with Toronto’s enviable status as a premier tech destination, has magnetized revenue-rich tenants.
“An open immigration policy and mature tech ecosystem have national and international firms adding to their workforce in Toronto,” Marcus & Millichap explained in its report.
During Q1 2019, more than 50,000 new jobs were added to GTA’s workforce, “many at the high-tech companies that have been driving office absorption.”
“The metro has become increasingly popular as a major hub for tech and artificial intelligence, leading companies such as Shopify, Amazon, Microsoft and many others to announce plans to bring on more workers and take up additional office space.”
“Large supply influx brings more options to Toronto,” the study added. “The vast majority of construction is occurring downtown, where roughly 8.6 million square feet is scheduled for delivery by 2022.”
Together, these trends have pushed down the GTA commercial market’s vacancy rates to some of the lowest in North America, at an average of 4.4%. Net absorption is expected to approach 5 million square feet this year.
“This has contributed to rent growth that has outperformed the national rate, rising almost 26% over the past five years. Another year of exceptional space demand will compress the market vacancy rate to its lowest point of the cycle, supporting healthy rent gains.”
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