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CBRE has released their Q3 office market figures for Toronto and the GTA, and the numbers are showing continued strength in our city's office market, recent talk of a slowdown notwithstanding. A hot summer for leasing in Toronto proper led to an overall decrease in GTA vacancies by 40 basis points quarter-over-quarter to 9.2%. This decrease includes a drop of vacancies in Downtown by 70 basis points quarter-over-quarter, returning to 2013 levels of 5.0%.
A submarket of Toronto's Downtown, the Financial District experienced the largest vacancy decrease in a single quarter over nearly four years, dropping by 100 basis points quarter-over-quarter to 5.4% in Q3 2014. Other areas in the heart of the region also saw positive office leasing activity, including the Midtown and Downtown West submarkets.
While numbers were positive in the core of the city, the suburban market had a flat quarter, with vacancy numbers remaining unchanged from Q2 figures, at 13.7%. One exception to the slowing suburban market was Markham North/Richmond Hill, which experienced an impressive summer of leasing activity. Slowing activity in the suburban and north submarkets was countered by positive activity in the east submarket, which remained stable through Q3, and the west submarket, which saw sales increase by 30 basis points quarter-over-quarter to 16.9%.
The overall decrease in leasing activity for Toronto's satellite markets can be attributed to the continuing trend of businesses relocating from suburban areas to the Downtown Core, including recent examples such as Aimia/Aeroplan's lease of 51,000 square-feet of space at 130 King Street West, and Tata Consultancy Services leaving their Mississauga offices for 48,000 square-feet of space at 400 University Avenue.
Despite remaining in what is best described as a "Landlord's Market", downward pressure is being noted in rental rates for older building stock, as landlords are forced to get competitive in leasing space in the countless class "AA" office buildings located throughout the city.
A number of large deals are on the horizon for both the downtown and suburban markets, pointing to a positive end for 2014, which has overall been a successful year for real estate transactions in the region. All of Canada's 'Big Five' banks are, or soon will be, in the market for a total of approximately 1.5 million square feet of office space, which should prove to be a significant source of transactions in the coming months.
