Colliers Q1 2013 Office Market Report #cre #Toronto

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  • 1. SPRING 2013 | OFFICECOLLIERS INTERNATIONAL | MARKET REPORTTORONTO ONTARIO Canadian Market Overview The Canadian economy has been sending mixed signals during recent months, with some current domestic indicators looking more positive while others are not so encouraging. Most uplifting was the February employment report with the addition of just over 50,000 jobs. Good news for the office sector was the increase of service sector jobs, many of which were full-time positions. Overall retail sales were pretty flat, with auto sales excluded, following a drop in December. The retail sales numbers may indicate a reduced appetite for spending during 2013 as household debt weighs heavily on many consumers. A sobering trend becoming evident in the housing market is the downward trajectory of new home starts as the market seeks to find a sustainable level of starts. Downtown office vacancies, with minor exceptions, are sitting in mid-single digits and rents are reflecting the tight market conditions in prime CBD locations. Industrial markets are similarly well positioned, albeit with less upward pressure on rents in the Eastern markets. Retail property continues to benefit from U.S. retailer migration into Canada with retailers vying for prime mall space. Reflecting the above conditions, commercial market fundamentals across the country are anticipated to remain solid throughout 2013. MARKET INDICATORS 2012 Q4* 2013 Q1* Greater Toronto Area Overview The Greater Toronto Area office market experienced heightened activity in the last INVENTORY two quarters, especially in the two largest markets – Downtown and the GTA West market. The Downtown market experienced increased demand for quality space, NET ABSORPTION leading several new developments from the proposed stages into the planned/under construction phases. VACANCY RATE Despite the relatively low overall absorption for the GTA West market, there were ASKING NET RENT significant tenant moves to and from the market leading to nearly a balanced amount of negative and positive absorption as the market continues to be extremely active. ADDITIONAL RENT *change in comparison to previous quarter www.colliers.com/toronto
  • 2. MARKET REPORT | SPRING 2013 | OFFICE | TORONTOGTA Markets Downtown The downtown market has seen an increase in demand for office space as shown in the steady decline in the vacancy rate from 4.6 percent to 4.2 percent since last quarter. The Financial Core has seen a more significant decline in vacancy from 5.2 percent to 4.5 percent, indicating continued growth in demand for space within this submarket. GTA East Heightened leasing activity, especially with GTA North the more significant deals done at Commerce Court West, has resulted in fewer large block Central East opportunities. In the past six months, the Midtown Downtown several large block spaces that have been Central North vacant in the building have been leased to LAKE ONTARIO sizeable tenants, including Chubb Insurance, GTA West Inmet Mining and Laurentian Bank. The reasonable rates for this AAA class asset and lack of large block opportunities in AAA $24.12 and A class properties facilitated tenant DOWNTOWN OFFICE 4.2% 198,464 Wgt Avg. Asking interest and resulted in this building being STATISTICS Vacancy Rate Absorption 2013 Q1 almost fully leased. Davies Ward Phillips and Net RentGTA | HISTORICAL PERFORMANCE & FORECAST | Q1 2003 - Q1 2014F Net Absorption Vacancy Rate Asking Net Rent 25 25 FORECAST 20 20 Asking Net Rent ($)/Vacancy Rate (%) 15 15 Net Absorption (100,000 SF) 10 10 5 5 - 0 (5) -5 (10) -10 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International, April 2013P. 2 | COLLIERS INTERNATIONAL
  • 3. MARKET REPORT | SPRING 2013 | OFFICE | TORONTOVineberg LLP took 103,515 square feet of Quick absorption of new product has in the availability rate, which dropped fromspace at 155 Wellington Street West adding boosted developer confidence shown in the 6.5 percent last quarter to 5.6 percent thisto the significant Class A absorption this escalation in the number of developments quarter. This demographic trend is expectedquarter. moving into the construction phase before to grow as city planners continue to move pre-leasing commitments reach the towards the creation of “live, play, work”Tenants looking for space over 50,000 standard 60 percent. Allied Properties communities throughout the downtownsquare feet will find 4 opportunities in AAA REIT has begun construction on Queen hubs, namely south-bound towards theproperties compared to A class where Richmond Center West with 18 percent pre- waterfront. Financial services remain thethere are no availabilities for this space leased. With roughly 5 million square feet of key drivers of demand for new office spacerequirement. The vacancy rate for A class office space currently under construction in with Deloitte & Touche and Ernst & Youngis 4.2 percent compared to 5.0 percent for the downtown core and 17 projects in the accounting for nearly 600,000 square feet ofAAA class properties, suggesting increased planned/proposed phase, new supply could pre-leased space in deals done this quarter.appeal in the lower rental rates that A class add a potential 14 million square feet to the The upward pressure on rental rates inproperties provide. downtown office inventory from 2015 to conjunction with low vacancy rates reflects 2018. strength in the downtown office leasingDemand for new space is strong in market. It is expected that the activity within As residential developments continue todowntown Toronto with pre-leasing activity A class properties will remain high as newly rise and companies such as Google, Coca-ensuring projects such as 2 Adelaide constructed buildings continue to attract A Cola and TELUS look to attract a youngerStreet West, which is 43 percent pre- class tenants causing downward pressure generation of talent, there is an expectationleased, continue to the construction phase on rental rates in existing buildings within that many companies will want to be locatedadding an additional 900,000 square feet this asset class. in the core. This is exhibited by the decreaseof inventory to the Financial Core in 2016.GTA DOWNTOWN | HISTORICAL PERFORMANCE & FORECAST | Q1 2003 - Q1 2014F Net Absorption Vacancy Rate Asking Net Rent 12 30 FORECAST 10 25 8 20 Asking Net Rent ($) / Availability Rate (%) 6 15 Net Absorption (100.000 SF) 4 10 2 5 0 0 -2 -5 -4 -10 -6 -15 -8 -20 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International, April 2013 COLLIERS INTERNATIONAL | P. 3
  • 4. MARKET REPORT | SPRING 2013 | OFFICE | TORONTO Midtown Leasing activity has remained stagnant in However, there was a heightened amount of Midtown with the vacancy rate rising to 5.2 activity this quarter with deals that will impact percent this quarter. At the end of 2012, absorption over the next few quarters. By Midtown hit an all-time low in vacancy of 5.0 year-end, over 60,000 square feet will be percent and average net asking rates were occupied by three tenants. at their highest at $17.73 per square foot this quarter. The residential activity continues with the early stage of construction beginning at Minto Demand for residential space in Midtown 30Roe, a 34-storey residential condominium continues to drive developer interest in development by Minto located at Yonge and new condo construction. The lack of new Eglinton. This development will add 397 units commercial office construction has resulted to the residential market in spring 2015. in the tight marketplace at Yonge and Bloor with total availability at 5.1 percent this Morguard Investments and Pensionfund quarter and a continued rise in rental rates Realty have submitted an application to the from $19.66 last quarter to $20.93. City of Toronto to build an 83-storey tower on top of the Holt Renfrew Centre on Bloor The Yonge and Eglinton submarket appears Street. This mixed-use development will to tell a different story with vacancy rising contain an 8-storey office podium with the from 6.5 percent to 7.0 percent this quarter. remaining floors to be residential condos. MIDTOWN OFFICE 5.2% -48,786 $17.70 Wgt Avg. Asking STATISTICS Vacancy Rate Absorption 2013 Q1 Net RentMIDTOWN | HISTORICAL PERFORMANCE & FORECAST | Q1 2003 - Q1 2014F Net Absorption Vacancy Rate Asking Net Rent 4 20 FORECAST 3 15 Asking Net Rent ($) / Vacancy Rate (%) 2 10 Net Absorption (100,000 SF) 1 5 0 0 -1 -5 -2 -10 -3 -15 -4 -20 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International, April 2013P. 4 | COLLIERS INTERNATIONAL
  • 5. MARKET REPORT | SPRING 2013 | OFFICE | TORONTOGTA NorthThe GTA North market experienced a The Highway 404-407 submarketfurther decline in vacancy this quarter to 6.1 experienced heightened activity this quarterpercent – an all-time low for this market. A with some significant tenant moves. Althoughsignificant amount of absorption occurred absorption levels seem fairly minimal, severalin the Vaughan submarket, where 610 tenants in the 10-20,000 square foot rangeApplewood Crescent was newly occupied absorbed space in the market this quarter,by CIBC, Scotia Bank and Classified Media whereas four different tenants vacated spacethroughout the last six months. Vaughan this quarter. Toshiba is expected to takecontinues to have the highest suburban occupancy of their property at 75 Tivertonsubmarket Class A average net asking rent Court within the next six months, which willat $22.67 this quarter. account for nearly 80,000 square feet of positive absorption.There are limited large block opportunities With very limited new supply in the pipeline,in Vaughan with only 1 option with and a consistently low vacancy rate, it isimmediate occupancy over 25,000 square expected that the GTA North market willfeet at 7300 Keele Street, a total of 45,926 remain strong with vacancy expected to hitsquare feet available with an asking net 5.6 percent by year-end. Net asking rentsrent of $23.50. are forecasted to remain at the current levels. GTA NORTH OFFICE 6.1% 46,030 $15.25 Wgt Avg. Asking STATISTICS Vacancy Rate Absorption 2013 Q1 Net RentGTA NORTH | HISTORICAL PERFORMANCE & FORECAST | Q1 2003 - Q1 2014F Net Absorption Vacancy Rate Asking Net Rent 5 25 FORECAST 4 20 Asking Net Rent ($) / Vacancy Rate (%) 3 15 Net Absorption (100,000 SF) 2 10 1 5 0 0 -1 -5 -2 -10 -3 -15 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International, April 2013 COLLIERS INTERNATIONAL | P. 5
  • 6. MARKET REPORT | SPRING 2013 | OFFICE | TORONTO GTA East The GTA East market, the smallest of all The current inventory in this market is GTA office markets at just 5.5 million square aging, with the majority of buildings built feet, continues to post the highest vacancy in the 1980’s. In the last ten years, there rate in the GTA, at 8.6 percent this quarter. has been no significant new supply in this With negative absorption reported in the last market, keeping average net asking rates at two quarters, the market has seen some of affordable levels. its more significant sized tenants relocate. It is expected that asking rates will decline Last quarter, CUPE left their space at 305 in the GTA East market due to the number Milner Avenue (27,489 square feet) to of available options. The vacancy rate is relocate to 80 Commerce Valley Drive East expected to continue to hover between 8 to in the Markham Town Centre submarket. 9 percent. Currently, there are several large block opportunities in the GTA East market, with six direct options over 20,000 square feet. Nearly all of these options are available immediately, currently sitting vacant. GTA EAST OFFICE 8.6% -20,262 $13.14 Wgt Avg. Asking STATISTICS Vacancy Rate Absorption 2013 Q1 Net RentGTA EAST | HISTORICAL PERFORMANCE & FORECAST | Q1 2003 - Q1 2014F Net Absorption Vacancy Rate Net Asking Rent 3 20 FORECAST 15 2 Asking Net Rent ($) / Vacancy Ret (%) 10 Net Absorption (100,000 SF) 1 5 0 0 -5 -1 -10 -2 -15 -3 -20 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International, April 2013P. 6 | COLLIERS INTERNATIONAL
  • 7. MARKET REPORT | SPRING 2013 | OFFICE | TORONTOGTA WestAfter 2 consecutive quarters of relatively space at 2425 Matheson Boulevard East. Some tenants chose relocation options inhigh absorption, the GTA West market Both Sykes and Burger King accounted for more central markets, such as Replicon whoposted low levels of absorption this quarter negative absorption in the Class A Hwy left 7420 Airport Road upon lease expiry toat a total of 4,806 square feet. The 427-Bloor-Islington submarket this quarter, relocate to 48 Yonge Street.Mississauga City Centre and Meadowvale leaving a total of nearly 25,000 square feet The GTA West market is expected tosubmarkets accounted for the majority at 10 Four Seasons Place and 401 The West continue to show higher than usual levelsof the positive absorption this quarter, Mall. of activity throughout the next few quartersrecorded at 47,787 square feet and 44,943 The Meadowvale Class A submarket with some larger deals expecting to close.square feet respectively, however, seven of absorbed two large tenancies this quarter; It is forecasted that the average net askingthe twelve submarkets residing in the GTA Superior Energy took space at 6750 rates will remain stable throughout the nextWest market posted negative absorption Century Avenue and Golder Associates took few quarters with a slight decrease in thethis quarter, with the most extreme being in an additional 25,000 square feet at 6925 vacancy rate.the Hwy 427-Bloor-Islington submarket at Century Avenue. However, Intact Insurance47,534 square feet of negative absorption. left over 20,000 square feet at 6733Despite the low overall absorption number, Mississauga Road causing total absorptionthere was a heightened amount of activity levels to drop.this quarter in this market, with some newtenants coming into the market as well asseveral companies either vacating theirspace or downsizing this quarter, including GTA WEST OFFICE 7.8% 4,806 $14.73 Wgt Avg. Asking STATISTICS Vacancy Rate Absorption 2013 Q1RIM and Odyssey Financial, both leaving Net RentGTA WEST | HISTORICAL PERFORMANCE & FORECAST | Q1 2003 - Q1 2014F Net Absorption Vacancy Rate Asking Net Rent 10 30 FORECAST 8 25 20 6 Asking Net Rent ($) / Vacancy Ret (%) 15 Net Absorption (100,000 SF) 4 10 2 5 0 0 -2 -5 -4 -10 -6 -15 -8 -20 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International, April 2013 COLLIERS INTERNATIONAL | P. 7
  • 8. MARKET REPORT | SPRING 2013 | OFFICE | TORONTO Central North The Central North market experienced a slight increase in Our Services vacancy rates this quarter, posting negative absorption of > Brokerage 29,975 square feet. One noticeable vacancy in the Dufferin/ Finch submarket was the 12,500 square foot vacancy at 777 Supertest Road, formerly occupied by Alpine who downsized this quarter. > Corporate Solutions > Investment Services The North Yonge Corridor continues to be an extremely tight > Project Management market with a low vacancy rate at 2.8 percent. It continues > Real Estate Management Services to post one of the higher average asking net rents for Class A space at $20.04 per square foot. With large block opportunities > Valuation & Advisory Services in this market being somewhat rare, currently, 3 of the 4 options over 25,000 square feet are sublease opportunities. CONTACT INFORMATION CENTRAL NORTH OFFICE STATISTICS Scott Addison President | Eastern Canada 4.3% -29,975 $15.68 +1 416 620 2800 Vacancy Rate Absorption 2013 Q1 Wgt Avg. Asking Net Rent scott.addison@colliers.com John Arnoldi Central East Executive Managing Director Toronto Region The Central East market experienced a rise in vacancy this +1 416 643 3733 quarter to 6.1 percent with a quarterly negative absorption john.arnoldi@colliers.com of nearly 40,000 square feet. There were two significant vacancies in the Class A Consumers Road submarket with Direct Energy shutting down their Toronto operations Shawna Rogowski causing over 60,000 square feet of vacancy at 2225 Market Intelligence Manager Sheppard Avenue East, as well as Ally Financial leaving Toronto Region nearly 20,000 square feet at 2235 Sheppard Avenue East. +1 416 643 3764 shawna.rogowski@colliers.com It is expected that the vacancy rate will decline to the mid-5 percent range by year-end and net asking rates will hover in the mid-$12.00 range for the market. For more information on available properties, additional research reports, and our services please visit www.collierscanada.com/toronto CENTRAL EAST OFFICE STATISTICS 6.1% -39,855 $12.32 +1 416 777 2200 Vacancy Rate Absorption 2013 Q1 Wgt Avg. Asking Net RentThis document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees,representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content,accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers Internationalexcludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss anddamages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies. This publication is thecopyrighted property of Colliers International and /or its licensor(s). © 2013. All rights reserved. Colliers Macaulay Nicolls (Ontario) Inc., Brokerage. Accelerating success.www.colliers.com/toronto