Greater Toronto Area Office Markets End 2005 On A High Note
14 Dec, 2005, Toronto
Strong demand in suburbs drives vacancy to lowest level since Q4, 2001
Canada's largest office market ended 2005 on a high note, recording strong fourth quarter leasing activity across the board and positive absorption in most suburban markets. Leasing activity topped three million square feet during the quarter, a rate achieved only twice during the past three and a half years.
In its fourth quarter report released today, Cushman & Wakefield LePage also found that absorption -- one of the key measures of demand for the office leasing market -- spiked to 1.16 million square feet, representing a significant increase over the four-quarter average of 692,000 sq. ft. (ending Q3 2005).
"High absorption indicates that we are in a real growth phase," says Paul Morse, Sr. Vice President, Office Leasing, Cushman & Wakefield LePage, Toronto. "We're seeing more companies move forward with expansion plans, and that tells a tale of renewed confidence in our economy."
Much of the demand momentum centred on Class A space, which recorded 1.9 million square feet of leasing activity - and 63% of the total absorption -- during the quarter.
The Greater Toronto Area's overall vacancy rate fell to 8.5% from 9.3% during Q4, with available space tumbling in one quarter to 13.8 million square feet from over 15 million square feet. The purchase of the Nortel building at 8200 Dixie Rd. in Brampton had a major impact on the GTA west vacancy rate, which fell to 8.7% from 10.8% over the quarter. While the transaction isn't expected to close until Q1, 2006, availabilities have fallen by 500,000 sq. ft. due to the removal of this space the active market.
Although the GTA office inventory is evenly divided between central and suburban areas -- with about 81 million square feet in each market -- over 66% of the total leasing activity and 85% of absorption took place in the suburban markets during the last quarter, underscoring the growing demand strength of Toronto's suburban markets.
Leasing activity remained steady during the fourth quarter at 625,000 sq. ft., marginally outpacing the average demand of 587,000 sq. ft. recorded for the past four quarters. With so many tenants making moves in a very active market, and space being vacated in the process, absorption rang in at a low 60,000 square feet but is expected to rebound over the next two quarters.
In response, the overall vacancy rate notched downward slightly to 7.9% from 8.0% last quarter. Meanwhile, available sublease space fell to a five year low of 286,000 sq. ft.
The vacancy rate went into a free fall in the GTA West, due partly to the removal of the 500,000 sq. ft. of availabilities in the Nortel Building in Brampton, which, alone, reduced vacancy by 150 basis points. Total vacant space in GTA West fell by almost 675,000 square feet in a single quarter - the largest quarter drop in five years.
As well, leasing activity spiked to over 629,000 sq. ft., well above last year's activity, which hovered around 390,000 sq. ft. per quarter. Some 68% of the demand focused on Class A space. Absorption was strong at 319,000 square feet, a significant jump over the previous four quarter average of 191,000 sq. ft. per quarter. Notably, available sublet space also fell to 380,000 sq. ft., a five year low.
Midtown continues to be one of the hottest markets in the GTA. Leasing activity was strong at 250,000 square feet, (previous four quarter average was 269,000 square feet), and absorption hit 142,000 square feet, well above the previous four quarter average of 74,000 square feet. The overall vacancy rate fell to 7.5% from 8.3% over the quarter, with available sublet space shrinking to 108,000 square feet, a five year low.
The overall vacancy rate in the GTA East fell significantly during 2005's last quarter, dropping to 8.4% from 9.6% on quarter ago. Leasing activity at 800,000 square feet came close to doubling the average amount recorded in the previous four quarters. Notably, absorption was over 600,000 square feet, representing the highest single quarter of absorption in five years. Over 200,000 square feet of this related to the completion and occupancy of the second CGI building at 150 Commerce Valley Drive.
The overall vacancy rate in the GTA North continued to notch downward, falling to 7.5% from 7.8% one quarter ago. Above average leasing activity of 242,000 square feet and moderately strong absorption of 53,000 square feet helped tighten this market another notch. Sublet space of 124,000 square feet is now hovering at a five year low.
###CUSHMAN & WAKEFIELD LePAGE is the Canadian operation of the world's largest privately held real estate services firm. Founded in 1917, the firm has 189 offices in 57 countries around the globe, and 11,000+ talented professionals. Cushman & Wakefield delivers integrated solutions by actively advising, implementing and managing on behalf of landlords, tenants, and investors through every stage of the real estate process. These solutions include helping clients to buy, sell, finance, lease, and manage assets. C&W also provides valuation advice, strategic planning and research, portfolio analysis, and site selection and space location assistance, among many other advisory services.
Contact: Andrea Kuch