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Please find attached our Q4'06 Toronto Office Market Report.
SUMMARY: The financial core vacancy rate held steady at 6% after 12 consecutive quarters of decline. The rest of Toronto seems to be "catching up" as the vacancy rate in all of downtown (i.e. south of Lawrence) dropped from 9% to 7.6%.
Sublet space has increased! This seems contradictory at first glance. The explanation being that companies moving to larger premises are having to sublet the smaller suites they are leaving behind.
The expected completion of three new office towers in 2009 (RBC Centre, Telus Tower, and Bay Adelaide Centre West) will add 3.3 Million square feet of office space downtown. This represents 7.3% of the downtown market and should help ease rental rates in 2009 and beyond. For those tenants with leases expiring before 2009, however, the outcome looks somewhat bleak.
I hope you find these reports useful and invite you to contact me if you have any further questions.
CB Richard Ellis Limited
The fourth quarter saw the after effects of the
typical “lag time†which often occurs between
lease deals. Positive net absorption for the
Greater Toronto Area (GTA) returned to just
over a million square feet at 1.1 million SF, an
amount last seen in the first quarter of 2006.
In addition, the overall GTA vacancy rate
dropped 80 basis points from 9.7% third quar-
ter 2006 to 8.9% fourth quarter 2006. Central
Toronto experienced the largest decline in
vacancy this quarter, ending the fourth quarter
with 7.6% vacancy, a de-
cline of 140 basis points
from third quarter.
Downtown Toronto
continues to experience
a tightening market and
consequently landlords
have been more aggres-
sive in negotiations, particularly in tenant in-
ducements. Over the past year, there has been
a noticeable decrease in tenant incentives. As
the vacancy rate continues to decline down-
town, landlords are likely to be more selective
in their tenancy while sustaining a one-sided
market. For users looking for large blocks of
space downtown, there were fewer options this
quarter, particularly in the range of 100,000
SF and greater. The suburbs continue to
provide an alternative to downtown with large
blocks of space available, opportunities seeing
a slight increase in the 30,000 – 50,000 SF
range, especially in the GTA West.
Despite the aggregate net rental rate fall-
ing, the GTA is still seeing a trend of net rents
increasing. Across the individual markets, the
GTA has seen the average net rental rates
edge upwards, with the exception of GTA
North, where net rents reduced by $0.48 psf
to $14.62 psf. Central Toronto ended the year
with average asking net rental rates of $18.08 psf,
up $0.15 psf from last quarter. The premier Class
‘A’ buildings in the Financial Core experienced an
increase of $1.14 psf to $30.20 psf this quarter,
which correlates to the drop in vacancy of 50 basis
points to 3.8%.
With the tightening market in the Financial Core,
many tenants have no other option but to look
outside for alternative considerations. Conse-
quently, leasing activity has picked up significantly
in the Greater Core
over the year, and as a
result, the vacancy rate
has declined 200 basis
points from third quarter
to 7.9%. The Greater
Core ended the year
with positive absorp-
tion of 286,083 SF for
this quarter, outperforming all other office nodes,
with the exception of Downtown West, which had
notable positive absorption of 323,009 SF.
New supply this quarter totalled 165,851 SF with
the GTA West seeing the bulk of the construction
completing 135,415 SF in the Airport Corporate
Centre office node. The GTA North welcomed
its first completion since third quarter 2005, with
30,436 SF being added to the Vaughan inventory
at 8395 Jane Street. The GTA West leads the pack
with the most number of projects under construction
at fifteen, downtown totals six, GTA East is at three
and GTA North has one. Although the suburban ar-
eas have the most projects underway, the buildings
are generally smaller in size with total area under
construction at 2.3 million SF, versus the 3.4 million
SF in downtown. As the majority of construction is
scheduled for 2007 completion, specifically in the
suburbs, the added new inventory will bring much
needed relief, for the most part, to the GTA West
large space users.
As the vacancy rate continues to
decline downtown, landlords are likely
to be more selective in their tenancy
while sustaining a one-sided market.
• Over 1.5 million SF of new supply is scheduled
for 2007 completion, primarily in GTA West.
• With the vacancy rate at 3.8%, Premier Class
‘A’ asking net rents have increased to $30.20 psf.
• Diminishing space has sent rental rates higher
in specific buildings and locations.
CENTRAL TORONTO
This quarter Central Toronto posted 1.0 million SF of positive absorption, up from 58,970 SF last quarter. Class ‘A’ absorption jumped from
negative 94,454 SF to positive 358,329 SF over the quarter.
The vacancy rate dropped 140 basis points down from 9.0% last quarter to 7.6% this quarter, with all classes on the decline. Asking net rental
rates have broken the $18.00 psf mark increasing to $18.08 psf, which was last observed second quarter 2004. Additional rental rates have
also increased by $0.63 psf ending 2006 at $18.83 psf.
Significant Central Market transactions this quarter include:
• TVOntario renewed 120,810 SF at 2180 Yonge Street
• Halcrow Yolles leased 43,055 SF at 207 Queen’s Quay West
• PlateSpin Ltd. leased 30,000 SF at 334 King Street East
FINANCIAL CORE
The vacancy rate increased slightly over the quarter, breaking the downward trend of ten consecutive quarters with an increase of 10 basis
points. Sublet space was the main culprit as 56,113 SF was returned to market in the fourth quarter. The vacancy rate in the premier Class ‘A’
buildings continued its descent by 50 basis points, to 3.8%.
Quoted asking net rental rates maintained an upward climb to $25.20 psf this quarter, while additional rental rates have decreased slightly to
$25.81 psf from $25.88 psf last quarter.
Significant Financial Core transactions this quarter include:
• Dundee Wealth Management Inc. leased 41,259 SF at 4 King Street West
• GCAN Insurance Company leased 17,669 SF at 181 University Avenue
• Basman Smith LLP leased 14,520 SF at 111 Richmond Street West
GREATER CORE
As leasing activity picked up in this office node, it does not come as a surprise that the vacancy rate decreased this quarter by 200 basis points.
Absorption also increased significantly this quarter from 61,516 SF third quarter to 286,083 SF this quarter.
Quoted asking net rental rates for Class ‘A’ buildings have increased from $19.26 psf to $20.86 psf this quarter as leasing activity remains
strong. The additional rental rates have decreased $0.17 psf to $20.51 psf fourth quarter.
Significant Greater Core transactions this quarter include:
• Canada Post Corporation renewed 68,000 SF at 1 Dundas Street West
• St. Paul Guarantee Insurance Company leased 40,000 SF at 20 Queen Street West
• Morningstar Research Inc. leased 22,980 SF at 1 Toronto Street
MIDTOWN MARKET
The vacancy rate has fallen this quarter from 10.7% to 9.4%, a drop of 130 basis points. All three submarkets that constitute this market have
all experienced the tightening market, especially in the St. Clair/Yonge submarket, where the vacancy rate dropped 270 basis points to 8.8%
this quarter.
Quoted asking net rental rates are on the rise again at $14.37 psf, up $0.37 psf this quarter. Additional rental rates have also increased this
quarter by $0.36 psf to $17.59 psf.
Significant Midtown Market transactions this quarter include:
• Millennium Research Group renewed and expanded 24,000 SF at 175 Bloor Street East
• Arcturus Realty Corporation leased 17,582 SF at 425 Bloor Street East
• Northland Power Inc. renewed 15,773 SF at 30 St. Clair Avenue West
SUBURBAN TORONTO
The vacancy rate remained unchanged at 10.4%. Absorption increased from negative 522,674 SF last quarter to a positive 32,316 SF. Construc-
tion completions amounted to 165,851 SF, ending the year with a total of 282,241 SF of new supply added to the suburbs in 2006.
Quoted asking net rental rates rose $0.58 psf to $12.29 psf this quarter. Additional rental rates also escalated by $0.60 psf between quarters to
$13.08 psf.
Significant Suburban Market transactions this quarter include:
• Deloitte & Touche LLP renewed 70,000 SF at 5140 Yonge Street
• Stantec Inc. leased 57,500 SF at 675 Cochrane Drive
• WorleyParsons (Canada) Ltd. subleased 54,000 SF at 2645 Skymark Avenue
NORTH MARKET
Vacancy rates in the GTA North have fallen by 40 basis points to 6.8% overall. While both the North Yonge Corridor submarket and the North
York West submarket experienced decreases in vacancy rates, Vaughan saw an increase of 140 basis points between quarters to 5.3%, reaching
its peak this year in the fourth quarter.
Quoted asking net rental rates decreased by $0.48 psf to $14.62 psf. Additional rents fell by $0.92 psf to $16.78 psf this quarter.
Significant North market transactions this quarter include:
• Capital One Services Inc. leased 34,000 SF at 5140 Yonge Street
• Atlas Cold Storage renewed 22,000 SF at 5255 Yonge Street
• London Life Insurance Company leased 11,000 SF at 3700 Steeles Avenue West
EAST MARKET
Vacancy in the GTA East is on the rise, largely due to considerable blocks of space returning to the market from last quarter. The vacancy rate rose
10 basis points to 13.4%, finishing 2006 at its highest point of the year. Absorption remains negative at 62,116 SF.
Quoted asking net rental rates increased by $1.36 psf to $11.11 psf this quarter. This is largely due to the declining vacancy and consequently
asking net rent increases in both the Markham/Richmond Hill and Woodbine/Steeles Class ‘B’ buildings. Additional rents also increased notably
by $1.79 psf to $13.61 psf.
Significant East market transactions this quarter include:
• Citco (Canada) Inc. subleased 42,000 SF at 180 Duncan Mill Road
• Mac’s Convenience Stores Inc. leased 34,000 SF at 305 Milner Avenue
• ING Bank of Canada leased 27,500 SF at 3389 Steeles Avenue East
WEST MARKET
The vacancy rate remained unchanged between quarters at 9.3%. Absorption increased from negative 125,541 SF last quarter to a positive
124,497 SF this quarter. 135,415 SF of new supply was added this quarter to the Airport Corporate Centre submarket.
Quoted asking net rental rates in the GTA West increased by $0.19 psf to $13.13 psf this quarter. Additional rental rates decreased this quarter by
$0.06 psf to $11.53 psf.
Significant West market transactions this quarter include:
• Regional Municipality of Peel leased 31,860 SF at 1075 North Service Road
• Reckitt Benkiser (Canada) Inc. leased 23,295 SF at 1680 Tech Avenue
• Dairy Queen Canada Inc. leased 15,300 SF at 5045 South Service Road
MARKET AREA DESCRIPTIONS
CENTRAL
74.3 million SF of office space representing 53% of the GTA office market
NORTH
11.2 million SF of suburban office space representing 8% of the office market
EAST
24.1 million SF of the suburban office space representing 17% of the office market
WEST
29.7 million SF of suburban office space representing 21% of the office market
GTA
Total 139.3 million SF of office space
SUMMARY: The financial core vacancy rate held steady at 6% after 12 consecutive quarters of decline. The rest of Toronto seems to be "catching up" as the vacancy rate in all of downtown (i.e. south of Lawrence) dropped from 9% to 7.6%.
Sublet space has increased! This seems contradictory at first glance. The explanation being that companies moving to larger premises are having to sublet the smaller suites they are leaving behind.
The expected completion of three new office towers in 2009 (RBC Centre, Telus Tower, and Bay Adelaide Centre West) will add 3.3 Million square feet of office space downtown. This represents 7.3% of the downtown market and should help ease rental rates in 2009 and beyond. For those tenants with leases expiring before 2009, however, the outcome looks somewhat bleak.
I hope you find these reports useful and invite you to contact me if you have any further questions.
CB Richard Ellis Limited
The fourth quarter saw the after effects of the
typical “lag time†which often occurs between
lease deals. Positive net absorption for the
Greater Toronto Area (GTA) returned to just
over a million square feet at 1.1 million SF, an
amount last seen in the first quarter of 2006.
In addition, the overall GTA vacancy rate
dropped 80 basis points from 9.7% third quar-
ter 2006 to 8.9% fourth quarter 2006. Central
Toronto experienced the largest decline in
vacancy this quarter, ending the fourth quarter
with 7.6% vacancy, a de-
cline of 140 basis points
from third quarter.
Downtown Toronto
continues to experience
a tightening market and
consequently landlords
have been more aggres-
sive in negotiations, particularly in tenant in-
ducements. Over the past year, there has been
a noticeable decrease in tenant incentives. As
the vacancy rate continues to decline down-
town, landlords are likely to be more selective
in their tenancy while sustaining a one-sided
market. For users looking for large blocks of
space downtown, there were fewer options this
quarter, particularly in the range of 100,000
SF and greater. The suburbs continue to
provide an alternative to downtown with large
blocks of space available, opportunities seeing
a slight increase in the 30,000 – 50,000 SF
range, especially in the GTA West.
Despite the aggregate net rental rate fall-
ing, the GTA is still seeing a trend of net rents
increasing. Across the individual markets, the
GTA has seen the average net rental rates
edge upwards, with the exception of GTA
North, where net rents reduced by $0.48 psf
to $14.62 psf. Central Toronto ended the year
with average asking net rental rates of $18.08 psf,
up $0.15 psf from last quarter. The premier Class
‘A’ buildings in the Financial Core experienced an
increase of $1.14 psf to $30.20 psf this quarter,
which correlates to the drop in vacancy of 50 basis
points to 3.8%.
With the tightening market in the Financial Core,
many tenants have no other option but to look
outside for alternative considerations. Conse-
quently, leasing activity has picked up significantly
in the Greater Core
over the year, and as a
result, the vacancy rate
has declined 200 basis
points from third quarter
to 7.9%. The Greater
Core ended the year
with positive absorp-
tion of 286,083 SF for
this quarter, outperforming all other office nodes,
with the exception of Downtown West, which had
notable positive absorption of 323,009 SF.
New supply this quarter totalled 165,851 SF with
the GTA West seeing the bulk of the construction
completing 135,415 SF in the Airport Corporate
Centre office node. The GTA North welcomed
its first completion since third quarter 2005, with
30,436 SF being added to the Vaughan inventory
at 8395 Jane Street. The GTA West leads the pack
with the most number of projects under construction
at fifteen, downtown totals six, GTA East is at three
and GTA North has one. Although the suburban ar-
eas have the most projects underway, the buildings
are generally smaller in size with total area under
construction at 2.3 million SF, versus the 3.4 million
SF in downtown. As the majority of construction is
scheduled for 2007 completion, specifically in the
suburbs, the added new inventory will bring much
needed relief, for the most part, to the GTA West
large space users.
As the vacancy rate continues to
decline downtown, landlords are likely
to be more selective in their tenancy
while sustaining a one-sided market.
• Over 1.5 million SF of new supply is scheduled
for 2007 completion, primarily in GTA West.
• With the vacancy rate at 3.8%, Premier Class
‘A’ asking net rents have increased to $30.20 psf.
• Diminishing space has sent rental rates higher
in specific buildings and locations.
CENTRAL TORONTO
This quarter Central Toronto posted 1.0 million SF of positive absorption, up from 58,970 SF last quarter. Class ‘A’ absorption jumped from
negative 94,454 SF to positive 358,329 SF over the quarter.
The vacancy rate dropped 140 basis points down from 9.0% last quarter to 7.6% this quarter, with all classes on the decline. Asking net rental
rates have broken the $18.00 psf mark increasing to $18.08 psf, which was last observed second quarter 2004. Additional rental rates have
also increased by $0.63 psf ending 2006 at $18.83 psf.
Significant Central Market transactions this quarter include:
• TVOntario renewed 120,810 SF at 2180 Yonge Street
• Halcrow Yolles leased 43,055 SF at 207 Queen’s Quay West
• PlateSpin Ltd. leased 30,000 SF at 334 King Street East
FINANCIAL CORE
The vacancy rate increased slightly over the quarter, breaking the downward trend of ten consecutive quarters with an increase of 10 basis
points. Sublet space was the main culprit as 56,113 SF was returned to market in the fourth quarter. The vacancy rate in the premier Class ‘A’
buildings continued its descent by 50 basis points, to 3.8%.
Quoted asking net rental rates maintained an upward climb to $25.20 psf this quarter, while additional rental rates have decreased slightly to
$25.81 psf from $25.88 psf last quarter.
Significant Financial Core transactions this quarter include:
• Dundee Wealth Management Inc. leased 41,259 SF at 4 King Street West
• GCAN Insurance Company leased 17,669 SF at 181 University Avenue
• Basman Smith LLP leased 14,520 SF at 111 Richmond Street West
GREATER CORE
As leasing activity picked up in this office node, it does not come as a surprise that the vacancy rate decreased this quarter by 200 basis points.
Absorption also increased significantly this quarter from 61,516 SF third quarter to 286,083 SF this quarter.
Quoted asking net rental rates for Class ‘A’ buildings have increased from $19.26 psf to $20.86 psf this quarter as leasing activity remains
strong. The additional rental rates have decreased $0.17 psf to $20.51 psf fourth quarter.
Significant Greater Core transactions this quarter include:
• Canada Post Corporation renewed 68,000 SF at 1 Dundas Street West
• St. Paul Guarantee Insurance Company leased 40,000 SF at 20 Queen Street West
• Morningstar Research Inc. leased 22,980 SF at 1 Toronto Street
MIDTOWN MARKET
The vacancy rate has fallen this quarter from 10.7% to 9.4%, a drop of 130 basis points. All three submarkets that constitute this market have
all experienced the tightening market, especially in the St. Clair/Yonge submarket, where the vacancy rate dropped 270 basis points to 8.8%
this quarter.
Quoted asking net rental rates are on the rise again at $14.37 psf, up $0.37 psf this quarter. Additional rental rates have also increased this
quarter by $0.36 psf to $17.59 psf.
Significant Midtown Market transactions this quarter include:
• Millennium Research Group renewed and expanded 24,000 SF at 175 Bloor Street East
• Arcturus Realty Corporation leased 17,582 SF at 425 Bloor Street East
• Northland Power Inc. renewed 15,773 SF at 30 St. Clair Avenue West
SUBURBAN TORONTO
The vacancy rate remained unchanged at 10.4%. Absorption increased from negative 522,674 SF last quarter to a positive 32,316 SF. Construc-
tion completions amounted to 165,851 SF, ending the year with a total of 282,241 SF of new supply added to the suburbs in 2006.
Quoted asking net rental rates rose $0.58 psf to $12.29 psf this quarter. Additional rental rates also escalated by $0.60 psf between quarters to
$13.08 psf.
Significant Suburban Market transactions this quarter include:
• Deloitte & Touche LLP renewed 70,000 SF at 5140 Yonge Street
• Stantec Inc. leased 57,500 SF at 675 Cochrane Drive
• WorleyParsons (Canada) Ltd. subleased 54,000 SF at 2645 Skymark Avenue
NORTH MARKET
Vacancy rates in the GTA North have fallen by 40 basis points to 6.8% overall. While both the North Yonge Corridor submarket and the North
York West submarket experienced decreases in vacancy rates, Vaughan saw an increase of 140 basis points between quarters to 5.3%, reaching
its peak this year in the fourth quarter.
Quoted asking net rental rates decreased by $0.48 psf to $14.62 psf. Additional rents fell by $0.92 psf to $16.78 psf this quarter.
Significant North market transactions this quarter include:
• Capital One Services Inc. leased 34,000 SF at 5140 Yonge Street
• Atlas Cold Storage renewed 22,000 SF at 5255 Yonge Street
• London Life Insurance Company leased 11,000 SF at 3700 Steeles Avenue West
EAST MARKET
Vacancy in the GTA East is on the rise, largely due to considerable blocks of space returning to the market from last quarter. The vacancy rate rose
10 basis points to 13.4%, finishing 2006 at its highest point of the year. Absorption remains negative at 62,116 SF.
Quoted asking net rental rates increased by $1.36 psf to $11.11 psf this quarter. This is largely due to the declining vacancy and consequently
asking net rent increases in both the Markham/Richmond Hill and Woodbine/Steeles Class ‘B’ buildings. Additional rents also increased notably
by $1.79 psf to $13.61 psf.
Significant East market transactions this quarter include:
• Citco (Canada) Inc. subleased 42,000 SF at 180 Duncan Mill Road
• Mac’s Convenience Stores Inc. leased 34,000 SF at 305 Milner Avenue
• ING Bank of Canada leased 27,500 SF at 3389 Steeles Avenue East
WEST MARKET
The vacancy rate remained unchanged between quarters at 9.3%. Absorption increased from negative 125,541 SF last quarter to a positive
124,497 SF this quarter. 135,415 SF of new supply was added this quarter to the Airport Corporate Centre submarket.
Quoted asking net rental rates in the GTA West increased by $0.19 psf to $13.13 psf this quarter. Additional rental rates decreased this quarter by
$0.06 psf to $11.53 psf.
Significant West market transactions this quarter include:
• Regional Municipality of Peel leased 31,860 SF at 1075 North Service Road
• Reckitt Benkiser (Canada) Inc. leased 23,295 SF at 1680 Tech Avenue
• Dairy Queen Canada Inc. leased 15,300 SF at 5045 South Service Road
MARKET AREA DESCRIPTIONS
CENTRAL
74.3 million SF of office space representing 53% of the GTA office market
NORTH
11.2 million SF of suburban office space representing 8% of the office market
EAST
24.1 million SF of the suburban office space representing 17% of the office market
WEST
29.7 million SF of suburban office space representing 21% of the office market
GTA
Total 139.3 million SF of office space
