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GTA Office Vacancy hits its lowest point
12 Jun, 2008, Toronto
City approaches end of cycle
Vacant space in the GTA is expected to reach its cycle low water mark over the final two quarters of 2008, ushering in the beginning of a new office leasing cycle.
The downtown, AAA vacancy rate dropped to just 1.9 percent in the second quarter of 2008, down from 2.7 percent last year. Overall vacancy in the GTA (all classes) dropped to 5.3 percent – down from 6.6 percent in the second quarter of 2007.
The GTA Vacancy rate is expected to fall below its historic low of 5.0 percent over the next few quarters, driven in part by a pause in development activity that will see only 300,000 square feet of new supply come to market over the balance of 2008.
It is anticipated that, in early 2009 the overall vacancy rate will begin to rise.
“We’ve seen moderate, healthy growth for the past four years,” said Pierre Bergevin, incoming President and CEO of Cushman & Wakefield LePage. “What we have not seen is an overheating of market conditions: no “dotcom” explosion, no warehousing of space as we saw in 2000. Occupancy rates are at historic highs and landlords are well positioned for softer demand.”
The second quarter of 2008 was characterized by buoyant demand, though demand momentum shifted eastward over the quarter, as tenants locked down some of the larger remaining space opportunities in the GTA East. Absorption spiked to almost 400,000 sf in the GTA East driving the vacancy rate in that market down to 8.2 percent from 9.1 percent last quarter.
The GTA as a whole saw strong demand and cautious deal making push the vacancy rate downward to 5.3 percent from 5.6 percent last quarter.
The Central Area saw tenants with near term lease expiries chip away at some of the remaining well located blocks of space over the second quarter. Class A space in the Financial Core fell to 5.9 percent for the first time since 2001. Class B and C also saw significant tightening to 2.7 percent and 3.6 percent respectively.
In 2009 three new office towers in downtown Toronto will add 3.4 million square feet of space to this market – 60 percent of which is pre-leased – adding upward pressure to vacancy rates.
Excluding the GTA East, which still has a relatively high vacancy rate, the balance of the GTA office markets have an overall vacancy rate of 4.6 percent. This is marginally tighter than at the peak of the last cycle.
The GTA West held firm at 6.5 percent over the second quarter, but with development activity pausing in the west, vacancy is expected to tighten further over coming quarters.
“The caution in these statistics is that, while second quarter results indicate companies are expansion minded – we need to remember that office markets are a lagging indicator of economic change,” said Bergevin.
Cushman & Wakefield LePage is the Canadian operation of Cushman & Wakefield – the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 221 offices in 58 countries and more than 15,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, and Consulting Services, including business and real estate consulting. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushmanwakefield.com.
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