Toronto, Canada. The Greater Toronto Area could face an overabundance of office space in the next few years, which could lower rents and increase vacancy rates to 10 per cent – the highest in a decade.
According to Jeff Howell, Principal of Nidea Corporate Real Estate / ITRA Global, “We have seen a slowing in demand for office space downtown over the last two quarters. This is at a time when 7.3 million square feet of new space is under construction – that’s more than this market has ever seen.”
Jeff added, “The growth has been tremendous for a very long time. Toronto has become the condo capital of North America and if there is one thing that is predictable of first time condo buyers is that they want to live where the action is — downtown. This has been a human resources dream for the financial services sector. But what goes up must come down, and the amount of new space hitting the market does not look like it will be absorbed at the same pace we have seen in recent years.”
Early in the year demand remained strong and vacancy rates continued to sink, especially in the downtown core where they reached a record low of 3.9% at the end of 2012. That’s down sharply from the downtown vacancy rate of 5.1% a year prior.
“Let’s not forget about sublets.” Jeff went on to say, “Sublets are an indicator of how well companies are doing and are turnkey bargains for companies in the market. If a company can move to a space that is already constructed and a sub-landlord is undercutting competition from conventional landlords, why would they not pursue this? Sublets have increased by 50% this year with 800,000 square feet of sublet space increasing to over 1.2M square feet in the financial core. This means there are more discounted choices for tenants and most of the tenants looking to dump space are not candidates for expanding any time soon. Eventually landlords will have to soften their position to try to compete with the sublets.”
Toronto will be an interesting market in the coming years. The city’s skyline has been reshaped dramatically over the past decade and the coming decade may see little activity except for the leverage shifting from landlords to space occupiers.
As a co-founder of Nidea Corporate Real Estate / ITRA Global, Jeff is an owner of one of the fastest growing tenant representation firms in Toronto and is a leader in his field. Nidea is a 100% Canadian-owned and Principal-managed corporation, providing innovative real estate solutions exclusively to corporate space users. Nidea does not represent landlords, developers or building owners, which allows them to maintain a clear focus in the development of operating strategies formulated and delivered on behalf of their clients.
ITRA Global is one of the largest commercial real estate organizations devoted to representing corporate tenants and buyers. With coverage in major markets around the world, ITRA Global consists of seasoned professionals with an average of twenty years’ experience and is differentiated by its focus on advocacy for the corporate tenant and buyer.
For more information about the corporate real estate market in the Toronto area, contact Jeff Howell at 1.416.941.9900 or email jhowell(at)nideacorp.com. For more information about ITRA Global, contact the organization’s Executive Director, Beth Wade, at 1.706.654.3201 or email *protected email*