Full Steam Ahead For Toronto Office Markets

13 Mar, 2006, Toronto

Absorption reached new highs in 2006's first quarter

Robust demand for office space in Canada's largest office market generated the largest single quarter drop in vacancy the Greater Toronto Area (GTA) has seen in five years, according to Cushman & Wakefield LePage's 2006 first quarter results released today. The overall GTA vacancy rate fell to 7.6% from 8.5% last quarter, driven by leasing activity of 3.6 million sq. ft. -- the highest level recorded since Q2, 2001 (peak leasing activity at the end of the last office leasing boom).

Tenants focused on Class A space this quarter resulting in a demand spike in demand, as leasing activity soared over 2.7 million sq. ft. This compares to the average leasing activity of about 1.5 million sq. ft per quarter recorded for four quarters in a row, ending Q3, 2005.

"There is no longer any question that white-collar jobs are being created in Toronto," said Paul Morse, Sr. Vice President, National Practice Director, Office Leasing, Cushman & Wakefield LePage, Toronto, "Real growth is taking place in most GTA markets across a wide range of key sectors including financial services, technology and professional services. We haven't seen this kind of confidence in a number of years."

Absorption, a fundamental indicator of underlying demand strength, hit a new high of 1.6 million sq. ft. a level unseen since Q4, 2000 at the peak of the last office leasing boom. The four-quarter average ending Q3, 2005 was just shy of 700,000 sq. ft. per quarter. Available sublease space hit a five-year low of 1.5 million sq. ft.

GTA Major Market Snapshot: Q1, 2006

Financial Core: After two quarters of modest absorption rates, demand for office space in Toronto's financial core spiked upward during the quarter, driving the overall vacancy rate down to 6.7% from 7.9% last quarter. This was the largest single quarter drop in vacancy over the past five years.

Leasing activity for Class A space, during a very active quarter, surged to over 900,000 sq. ft. The previous four-quarter average ending Q4, 2005 was approximately 275,000 sq. ft. per quarter. Demand for Triple A space also picked up considerably, with leasing activity reaching some 330,000 sq. ft. This was a significant increase over the previous four-quarter average of approximately 150,000 sq. ft per quarter.

Available sublease space hit a new five year low of just over 230,000 sq. ft., on par with the lowest level achieved during the office leasing boom of 2000.

Downtown Fringe: The downtown fringe also saw exceptionally strong demand during the first quarter of 2005, driving the overall vacancy rate down to 8.6% from 10.3% last quarter.

Demand for Class A space was the story of the quarter and the fringe was no exception. Leasing activity reached over 440,000 sq. ft., well above the average activity of 180,000 sq. ft. per quarter, recorded during the previous four quarters

Available sublease space also hit a new low of 306,000 sq. ft. a level not seen since Q2, 2001.

GTA West: The GTA West continued to experience strong consistent demand pushing the overall vacancy rate downward to 7.5% from 8.7% last quarter.

Leasing activity topped out at almost 600,000 sq. ft. and absorption remained strong at over 415,000 sq. ft. This speaks to the underlying strength of the GTA west market. Demand was primarily focused on Class A space, pushing this market's vacancy rate down to 6.0% from 8.5% last quarter. Available sublease space hit a new five-year low of 294,000 sq. ft.

GTA East: The GTA experienced the weakest demand of any of the major GTA markets during Q1, 2006, with Class A leasing activity reaching 210,000 sq. ft. This compares an average of 360,000 sq. ft. during the previous four quarters. Still, the overall vacancy rate fell to 8.0% from 8.4% last quarter.

Absorption of just over 130,000 sq. ft. was well below the average rate of 225,000 sq. ft. per quarter recorded during the previous four quarters. Available sublet space remains just above 500,000 sq. ft.

While the GTA East saw a relatively weak quarter, it is anticipated that demand will pick up in coming quarters as large blocks of alternative space across the GTA become a scarcity.

Markets	Inventory (000's sf)	Q1 2006 Vacancy	Q4 2005 Vacancy	Q1 2005 Vacancy
Financial Core	33,986	6.8%	7.9%	8.9%
Downtown Fringe	29,918	8.6%	10.3%	10.2%
Downtown	63,904	7.6%	9.0%	9.5%
Midtown	17,338	7.7%	7.5%	9.5%
GTA East	32,949	8.0%	8.4%	9.4%
GTA North	14,519	6.5%	7.5%	8.9%
GTA West	33,093	7.5%	8.7%	11.8%
Toronto GTA Total	161,804	7.6%	8.5%	9.9%

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Cushman & Wakefield LePage is the Canadian operation of Cushman & Wakefield, the world's largest privately owned commercial real estate services firm with more than 11,000 professionals in 189 offices in 57 countries. The firm 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. Cushman & Wakefield also provides valuation advice, strategic planning and research, portfolio analysis, and site selection and space location assistance, among many other advisory services.

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