CBRE's recently-released second quarter office figures show continued strength in Toronto's commercial real estate market, a fact recently underlined by the revelation that Downtown Toronto now boasts the lowest vacancy rate of all major office markets in North America. At a rate of 4.8%—a reduction from the 5.1% vacancy rate recorded in Q1 2016—the Downtown Toronto market is just one of many in the GTA showing signs of strength, contributing to an overall GTA vacancy rate of 9.4% quarter-over-quarter, a drop from the 9.7% recorded last quarter. This report goes against earlier predictions, which pointed towards rising office vacancies in 2016-2017 due to oversupply.

Toronto skyline, image by Sanjay Chauhan via Flickr

Year-to-date net absorption of Downtown office space during the second quarter reached 992,688 square feet, a figure that hasn't been surpassed in over a decade, while other markets around the GTA also showed improvements. In general, tenant demand across the GTA stayed strong, with region-wide vacancies decreasing from 9.7% to 9.4% quarter-over-quarter.

The Downtown vacancy rate has decreased from 5.1% to 4.8% quarter over quarter, while the Financial Core submarket vacancy rate rose from 6.1% to 6.5%. In the Greater Core submarket, the vacancy rate fell from 3.3% to a quite tight 2.8%, while Midtown Toronto saw a vacancy rate decrease from 5.8% to 5.3%. The Toronto East vacancy rate has decreased to meet its 6-year average of 12.3%, while the Toronto West submarket saw increased vacancies at 19.1%, up from the Q1 figure of 18.9%. At the north end of the city, the Toronto North vacancy rate has decreased to 6.4% from 6.7%, marking the third consecutive quarter of decreasing vacancy for this submarket. Suburban submarkets decreased slightly from 14.8% to 14.7% during the same period, greatly exceeding the 10-year average of 11.7%.

The vacancy rate in Downtown Toronto could approach 4.0% by the close of the year, spurred on by the anticipated leasing of remaining commercial space at Bay Adelaide East and MaRS II, as well as other factors including new fully-leased developments and the absorption of recently-vacated blocks of existing office space. In addition, around 2.1 million square feet of office space is currently under construction and anticipated for 2016 completion. Of that number, 1.3 million sq. ft. of that space is being built in the Downtown submarket, with 92.4% of it pre-leased.

In addition to the active projects, if even a few of the current proposed developments are built, including the recently-announced LCBO Tower on Queens Quay East, the Downtown market may be subject to another major boom in office space in the years between 2022 and 2025, which could come along with a potential rise in vacancies.

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