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Downtown Toronto Vacancy Rate at New Low

Avison Young Report Says Vacancy Rate Now 2.6% For Offices, Suggests Tenants Might Look to Suburbs
January 23, 2018
Downtown Toronto office vacancy rates hit a record low in the fourth quarter of 2017, and a new report suggests those tight conditions and rising rents could push tenants to the suburbs in 2018.

"A record-breaking 2017 sets the bar high for 2018," said Bill Argeropoulos, principal and practice leader of research for Canada for Avison Young, who produced the four-page report on the Toronto market.

The report notes the overall downtown vacancy rate reached a historic low of 2.6%, and Toronto does have some potential key projects developing like Sidewalk Labs, an Amazon HQ2 bid that has made the final 20 shortlist, eBay's possible AI hub and the federal government's initiative to create tech superclusters which could bring more supply to the market.

"All have the potential to further raise (Toronto's) profile," said Avison about the major projects that could come to the city.

In the final quarter of 2017, the real estate firm said demand continued to outpace supply with almost three million square feet of office lease transactions in the quarter.

On Greater Toronto Area wide basis, Avison Young says there are 6.6 million square feet under construction, but that just equates with 3.7% of inventory. Across the GTA, 11 million square feet of deals were signed in 2017.

The suburbs are now proving to be a better bet for finding space with the report identifying 27 Class A building with contiguous space of more than 50,000 square feet versus 13 downtown.

"Yes, I think those tenants looking at downtown may reconsider their options. You will still have the odd one come downtown, though. We will likely have more movement within and between suburban markets," said Argeropoulos.

Avison Young said the market's overall success in 2017 is mainly owing to the strong performance of Toronto's downtown, and noted downtown lease transactions amounted to slightly more than seven million square feet in 2017.

For 2018, the firm thinks roles may be reversed. Tight conditions and rising rents in downtown and midtown will drive the suburban markets in 2018. With collective availability and vacancy rates of 14.6% and 10.6%, respectively, the suburbs continue to offer a wider range of existing and new-development options at competitive rental rates," the report concludes.

Garry Marr, Toronto Market Reporter  CoStar Group   

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