Toronto - In its Real Estate Market Research study published today, Newmark Knight Frank Devencore reported that the vacancy rate for all office classes in downtown Toronto was 6.4% at the end of 4Q16, up slightly from the 5.6% reported at the end of 2015. More than 2.2 million square feet of new office space is coming to the downtown market in 2017; in 2016 almost 1 million square feet was delivered. This development boom shows no signs of slowing and is effectively expanding the downtown core to both the west and east.
"Driving much of the leasing activity are tenants in the financial services, legal, media entertainment and high-tech sectors," said Allan Schaffer, President/Broker of Record of Newmark Knight Frank Devencore's Toronto downtown office . "Demand continues to be strong for office space in the new towers as well as for sublease space. Many well built-out sublease spaces are attracting multiple offers and do not remain on the market for very long."
Mr. Schaffer also commented that the extraordinary appetite for condo development in downtown Toronto is having a number of implications for both tenants and landlords.
"Building lots are increasingly scarce in the downtown area and some landlords, particularly those whose properties are close to subway lines, are inserting 12-month demolition clauses into their office leases in order to provide them with the flexibility to perform office-to-condo conversions," Mr. Schaffer said. "Existing and prospective tenants should determine whether their space is restricted or allows for these conversions."
As a way of intensifying the use of existing properties, developers have also launched redevelopment projects that add new structures on top of older buildings, the NKF Devencore report notes. It points to the success of this strategy at 134 Peter Street, where a 12-storey office tower built on top of two heritage buildings has attracted tenants seeking offices that combine a brick-and-beam character with contemporary systems and amenities.
In the months ahead, Newmark Knight Frank Devencore anticipates a relatively stable office market.
"With over 2 million square feet of office space being delivered to the downtown Toronto market in 2017, vacancy rates will likely remain at current levels or increase slightly," Mr. Schaffer said. "However, certain areas remain landlord-favoured ? downtown West, for example ? and there is no longer an oversupply of sublease space, as was the case a few years ago."
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