Toronto Office Demand Outstrips Construction

Toronto Downtown Office Demand on the Rise

RBC Waterpark Place

The demand for office space in Toronto's downtown core is rising at a rapid rate. Even with all the new construction downtown, this will not be enough to meet the market. Big Projects such as Bay Adelaide 2, 100 Adelaide and 45 Bay need to start soon, as there is demand for some new 13 million square feet of office space in the downtown core. This is astonishing to me, because Toronto's downtown market has been at about 5% vacancy for the past 3 or 4 years yet the rate of construction here in terms of offices has been stagnant. But it's likely we will see a major push on office construction this year with the beginning of the Bay Adelaide Complex Tower 2 this year. That tower will be 200 meters tall and 50 floors high, with about 1.1 million square feet of space. It is being developed by Brookfield, one of the largest office skyscraper construction companies on earth, which is conveiently has it's worldwide (global) head office in Toronto. Nice!

Here are some stories regarding the building boom, which has yet to materialize but should start with thunder once the excavators get into Arnell Plaza at Bay Adelaide Centre.






From the National Post

Rents are up and demand for space has hit an all-time high in the greater Toronto area office market, according to a new report from Colliers International.

The real estate firm says the average vacancy rate across the GTA was 6.3% in the third quarter, down from 7.2% a quarter earlier. The downtown vacancy rate dropped from 5.5% to 5.1% over the same period.
The strong demand helped bring the rate on asking rent with the average in the GTA $17.83 per square foot per year, up 13% from a year earlier.

At that level, rates are where they were prior to the recession of 2008. Asking rate for AAA facilities in the downtown core climbed more than 10% from a year ago to an average of $32.03 per square foot, up from $28.79 a year earlier

From the Toronto Star

Unrelenting demand for office space in Toronto has pushed vacancy rates to lows not seen in decades and raised concerns that demand may far outstrip supply for years to come despite a spate of new towers that are in the works.

The office vacancy rate is the lowest, just 5.1 per cent, in the downtown core, says a report by commercial brokerage Colliers International. That compares to about 6.3 per cent across the GTA. Ten per cent is considered a balanced vacancy rate.

The desire for office space within an easy walk or commute of the bright young talent now living in downtown condo towers has helped drive rents up 13 per cent as of the end of September over the same period last year, the report notes.

Net rental rates for the GTA averaged $17.87 in the third quarter, just below the record-setting levels leading up to the 2008 recession. Triple A class space hit $32.03 per square foot in the 3rd quarter, up 10 per cent over a year earlier.

The only easing of rents was in the financial core, as those aging offices faced increased competition from new towers in areas such the Railway Lands.

Contributing to the supply-and-demand imbalance is that fact that just 1.6 million square feet of office space has been built across the GTA in the last two years, an “insignificant addition” to the 185 million square feet of office space that already exists, the report notes.

While some three million square feet of space is under construction or slated to be built soon, that is likely not enough to keep up with demand, as companies that once fled to the suburbs look to locate back downtown and close to Union Station, says John Arnoldi, executive managing director for Colliers.
And it could be 2018 until some 13.5 million square feet of new office space is added to the core, assuming that 14 projects now in the planning or proposal stage go ahead, the report notes.