Traffic, dust, the rattle of construction tools and the rising population of cranes overhead are all reminders of Toronto's current construction boom. CBRE has published their first quarter report on the GTA commercial real estate market for the January to March period of 2014. The overall trend shows a slight increase in vacancy rates, which would usually signal a decrease in real estate demand, but leasing activity is actually on the increase after a slow last quarter of 2013.
One of the major sites of this vacancy increase is Toronto's Financial district, the economic heart of the country. By 2017, 5.8 million square feet of office space will be added to the area. From the end of the last quarter of 2013 to the end of the first quarter of 2014, the Financial Core's office vacancy rate increased slightly by 0.3% to 6.5%, but which is also a significant increase from the 4.6% low at the end of 2012. Much of this is attributed to the eight new high-rise office buildings currently under construction in the area, which are currently 55% pre-leased.
The Downtown area as a whole saw vacancy rise in the first quarter of the year. This predominately effected Class A space—premium office space—where vacancy rates increased to 6.1%. However, this has not quelled the touring and leasing activity. This increase has yet to be translated into the statistics which should be evident by the end of the second quarter.Downtown West experienced a strong growth with vacancy at a historic low of 2.3%. Although there is a supply shortage of large blocks of space with no blocks available over 10,000 square feet, it is muted by the overwhelming demand for both smaller and larger spaces. This area is home to restored factories and warehouses on the King West strip, like 401 Richmond West.
Further north, the Midtown market on Yonge around St. Clair and Eglinton, experienced a vacancy increase, with the rate now sitting at 7.5%. This was caused not only by a tapering of demand, but also of supply. Since there are few large blocks of space in this market, tenants mostly chose to renew rather than relocate, keeping vacancy rates steady.
Vacancy also increased in the Suburban market, reaching 13.3%. This increase however, is due to a slowdown in tenant demand. Tenants in these areas choose to renew rather relocate. Although this is the overall trend, certain submarkets like the Airport Corporate Centre, and at Highways 10 & 401 are in high demand, particularly from tenants relocating from adjacent submarkets in their efforts to find higher quality locations. Other markets that have always enjoyed strong demand, like Richmond Hill, Vaughan and Markham remain stable.
The GTA prediction for the coming quarters is a stable vacancy rate as stronger leasing activity in the downtown areas are countered by waning demand in the suburban markets. To get a more detailed breakdown of the commercial market activity, check out the first quarter report at CBRE's website. For a look at some of the office towers under construction in Toronto at the moment, dataBase files for the projects have been linked below.