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From the Star:
New towers to boost vacancy rates
Three new buildings set to hit office rental market in 2009
Study still predicts healthy balance of supply and demand
Oct. 4, 2006. 01:00 AM
TONY WONG
BUSINESS REPORTER
Peter Menkes is looking for a few good tenants. The problem is, he isn't the only one.
As president of the Commercial and Industrial division of Menkes Developments, his Union Tower, with Telus as lead tenant, will be one of three skyscrapers to be completed in downtown Toronto in 2009. The race is on among developers to lease more than a million square feet of remaining space before the buildings are completed.
"We all have leading-edge buildings, and we're eyeing many of the same potential tenants," Menkes said in an interview. "So it's certainly a competitive market."
The good news is that Menkes is competing in a market described as the healthiest in more than a decade, with rising rents and low vacancy rates. Until the buildings are filled, however, developers will be aggressively competing for tenants.
According to a report released yesterday by Colliers International, the addition of three towers in the downtown Toronto core in 2009 will cause vacancy rates to spike.
"With three new buildings coming on at the same time, some tenants are going to say, maybe I should wait to see what happens," said Keith Reading, vice-president of research at Colliers International.
Those tenants will be favoured with a vacancy rate that is forecast to hit as much as 10 per cent in 2009, up from 7.5 per cent in 2008. The 10 per cent threshold, however, is considered a balanced market, favouring neither landlords nor tenants.
In 2010, the market should absorb some of the extra supply and trend down to 9 per cent, according to the forecast.
While some tenants may be waiting on the sidelines, Menkes said the majority of prospects are "excited to be able to move into a new state-of-the art tower."
Telecommunications company Telus has already committed to more than 50 per cent of the Menkes building, taking 440,000 square feet, but the developer is still looking to lease more. Given the strong market conditions, however, he expects most to be leased on completion of the building.
His advantage is location, he said. The Telus tower is right beside Union Station.
"You can have your employees living just about anywhere, with Via and GO Transit right at your doorstep."
After a decade-long dearth of office building, Toronto has had a plethora of announcements this year.
Luckily for developers, the market will favour landlords for at least two more years, with vacancy rates falling from 9 per cent this year, according to Colliers. Vacancy rates have been steadily declining from 12 per cent in 2004.
When completed in 2009, the 1.3 million-square-foot RBC Centre in the entertainment district, the 1.1 million-square-foot Bay Adelaide Centre in the financial district and the 780,000-square-foot Telus tower will be the first skyscrapers built downtown in more than a decade. All three buildings have anchor tenants, but more than a million square feet are up for lease.
"The two-year window of opportunity for landlords to cash in on a tight market will end in mid to late 2008," said Colliers.
They won't be too badly off, though, Colliers said. A still-solid economy will continue to absorb the new supply, with forecast employment growth of 1.5 per cent to 3.6 per cent annually over the next five years.
Colliers expects the key finance, insurance and real estate sector to continue to grow faster than any other segment. More than half of all large downtown tenants are in that sector.
In Calgary, meanwhile, the oil and gas sector has been gobbling up space, and rents have increased 40 per cent over the past year.
Eight towers are scheduled for completion by 2008, but they're not likely to have a big impact on rents.
Calgary's vacancy rate, which has been squeezed down to an astounding 0.27 per cent, is the tightest in North America.
Reading acknowledged his forecast contains substantial risks, including a rising Canadian dollar hurting Ontario manufacturing even more and a possible recession in the United States, which would reduce demand for Canadian goods and services.
AoD
New towers to boost vacancy rates
Three new buildings set to hit office rental market in 2009
Study still predicts healthy balance of supply and demand
Oct. 4, 2006. 01:00 AM
TONY WONG
BUSINESS REPORTER
Peter Menkes is looking for a few good tenants. The problem is, he isn't the only one.
As president of the Commercial and Industrial division of Menkes Developments, his Union Tower, with Telus as lead tenant, will be one of three skyscrapers to be completed in downtown Toronto in 2009. The race is on among developers to lease more than a million square feet of remaining space before the buildings are completed.
"We all have leading-edge buildings, and we're eyeing many of the same potential tenants," Menkes said in an interview. "So it's certainly a competitive market."
The good news is that Menkes is competing in a market described as the healthiest in more than a decade, with rising rents and low vacancy rates. Until the buildings are filled, however, developers will be aggressively competing for tenants.
According to a report released yesterday by Colliers International, the addition of three towers in the downtown Toronto core in 2009 will cause vacancy rates to spike.
"With three new buildings coming on at the same time, some tenants are going to say, maybe I should wait to see what happens," said Keith Reading, vice-president of research at Colliers International.
Those tenants will be favoured with a vacancy rate that is forecast to hit as much as 10 per cent in 2009, up from 7.5 per cent in 2008. The 10 per cent threshold, however, is considered a balanced market, favouring neither landlords nor tenants.
In 2010, the market should absorb some of the extra supply and trend down to 9 per cent, according to the forecast.
While some tenants may be waiting on the sidelines, Menkes said the majority of prospects are "excited to be able to move into a new state-of-the art tower."
Telecommunications company Telus has already committed to more than 50 per cent of the Menkes building, taking 440,000 square feet, but the developer is still looking to lease more. Given the strong market conditions, however, he expects most to be leased on completion of the building.
His advantage is location, he said. The Telus tower is right beside Union Station.
"You can have your employees living just about anywhere, with Via and GO Transit right at your doorstep."
After a decade-long dearth of office building, Toronto has had a plethora of announcements this year.
Luckily for developers, the market will favour landlords for at least two more years, with vacancy rates falling from 9 per cent this year, according to Colliers. Vacancy rates have been steadily declining from 12 per cent in 2004.
When completed in 2009, the 1.3 million-square-foot RBC Centre in the entertainment district, the 1.1 million-square-foot Bay Adelaide Centre in the financial district and the 780,000-square-foot Telus tower will be the first skyscrapers built downtown in more than a decade. All three buildings have anchor tenants, but more than a million square feet are up for lease.
"The two-year window of opportunity for landlords to cash in on a tight market will end in mid to late 2008," said Colliers.
They won't be too badly off, though, Colliers said. A still-solid economy will continue to absorb the new supply, with forecast employment growth of 1.5 per cent to 3.6 per cent annually over the next five years.
Colliers expects the key finance, insurance and real estate sector to continue to grow faster than any other segment. More than half of all large downtown tenants are in that sector.
In Calgary, meanwhile, the oil and gas sector has been gobbling up space, and rents have increased 40 per cent over the past year.
Eight towers are scheduled for completion by 2008, but they're not likely to have a big impact on rents.
Calgary's vacancy rate, which has been squeezed down to an astounding 0.27 per cent, is the tightest in North America.
Reading acknowledged his forecast contains substantial risks, including a rising Canadian dollar hurting Ontario manufacturing even more and a possible recession in the United States, which would reduce demand for Canadian goods and services.
AoD