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Jll commercial real estate market report toronto 2014
1. Office Insight
Downtown Toronto. Q4 2013
Surprisingly, despite the increase in vacancy in the fourth quarter, average Class
A and Class B prices showed small increases to $23.70 p.s.f. and $19.42 p.s.f.,
respectively. Through 2014 these rates are expected to decrease as landlords
seek to attract tenants in a diverse and high supply market. Tenants could also
see significant benefits in the form of cash allowances and free rent periods.
Downtown Toronto did experience positive absorption of 55,000 square feet in
the fourth quarter, however this did little to offset the annual negative absorption
which ended the year at negative 667,859 square feet. In comparison, total
absorption for 2012 was a positive 537,516 square feet.
As tenants await the best possible market conditions leasing activity is expected
to decline. Over time, lower rates in the core will present more and more
tempting relocation options for companies in the suburbs looking to consolidate
and secure a downtown location. An influx of new companies into Downtown
Toronto could mean competition for tenants already here. Additionally, the
positive economic outlook with ideal leasing conditions will make Toronto an
attractive location for companies interested in entering Canada.
6.5%
2013 space completion
746,898 s.f.
12 Mth % Change in Leased area
-2.70%
2013 net absorption
-667,859 s.f.
12-month overall rent % change
+2.58%
Class A overall asking rent
$23.70 p.s.f
Class B overall asking rent
Pricing
The Mars Discovery Centre Phase II was completed and added to the downtown
inventory in the fourth quarter, the only construction completed in 2013. This
sciences targeted development at 661 University Avenue added 750,000 square
feet of space to the Downtown Toronto inventory and served as a large
contributor to the 90 basis point increase in vacancy over the quarter with
400,000 square feet of space still available in the building. Vacancy rates, as the
new developments come to market, are expected to continue to increase. In the
Class A market, vacancy rates surged 130 basis points over the quarter to match
downtown Toronto`s overall 6.5 percent rate. In the Class B market, rates
increased a modest 30 basis points to 5.7 percent.
4.7%
Total vacancy rate
Note:
70,626,238 s.f.
Direct vacancy rate
Demand
Market conditions
Conditions in the downtown core will soon see the effects of the 5.0 million
square feet of new class A office space currently under construction. Eight
developments are scheduled for completion with dates ranging through late 2014
– 2017. All submarkets with the exception of Downtown North have at least one
development in the pipeline with the Financial Core and Downtown South
receiving two and three projects respectively. Tenants in these new buildings
include RBC, Deloitte and Ernst & Young. There are an additional ten preleasing developments in Downtown Toronto whose developers are now
struggling to find suitable anchor tenants. Few, if any, are expected to move
forward in the near future.
Supply
Supply
Economy
Ontario’s economy is expected to accelerate over the next two years. RBC
Economics predicts a GDP growth of 2.6 percent in 2014 and 2.9 percent in
2015, citing a stronger manufacturing sector and the recovering U.S. economy
as catalysts. The 2013 GDP growth of 1.3 percent was largely attributable to the
vibrant service sector and limited by the weakness of the manufacturing sector.
The provincial unemployment rate is expected to drop 40 basis points to 7.1
percent by the end of 2014 and a further 20 basis points to 6.9 percent by 2015.
12-month
forecast
Current
Standing
Key market indicators
$19.51 p.s.f
indicates an increase
indicates a decrease
indicates status quo
Net new supply, net absorption and total vacancy
Net new supply
sf
Downtown Toronto sees lower market activity and
higher vacancy in anticipation of new developments
Net absorption
total vacancy
4,000,000
8%
3,500,000
7%
3,000,000
6%
2,500,000
2,000,000
5%
1,500,000
4%
1,000,000
3%
500,000
2%
0
1%
-500,000
-1,000,000
0%
2008
2009
2010
2011
2012
2013
Leasing Momentum *
30.00%
North
East
West
Core
South
King & Dufferin
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
2008
2009
2010
2011
2012
2013
.
* Leasing momentum equals change in occupied area as a percentage of all office building inventory
.
Source: Altus Insite, RBC Economics Research, Scotiabank Economics Research, Statistics Canada
2. Jones Lang LaSalle Americas Research • Greater Toronto Office Insight • Q4 2013 2
Available available
Sublease sublease space
Downtown East
Downtown West
sf
4,000,000
Downtown North
Financial Core
Downtown South
King & Dufferin
Downtown East
Downtown West
900,000
sf
Available direct space
Downtown North
Financial Core
Downtown South
King & Dufferin
800,000
3,500,000
700,000
3,000,000
600,000
2,500,000
500,000
2,000,000
400,000
1,500,000
300,000
1,000,000
200,000
500,000
100,000
0
0
2008
2009
2010
2011
2012
2013
2008
2009
2010
2011
Class B overall asking rents
$35
Downtown East
Downtown West
Downtown North
Financial Core
Downtown South
King & Dufferin
$ psf
Class A overall asking rents
2013
* Includes all available sublease space on the market
$ psf
* Includes all available direct space on the market
2012
$30
Downtown East
Downtown West
$25
Downtown North
Financial Core
Downtown South
King & Dufferin
$20
$25
$15
$20
$15
$10
$10
$5
$5
$0
$0
2008
2009
2010
2011
2012
2008
2013
East
400
North
South
West
Core
2011
2012
2013
East
North
South
West
Core
King & Dufferin
100
Number of blocks
Number of blocks
120
King & Dufferin
350
300
250
200
150
80
60
40
100
20
50
0
2010
Class B blocks of available contiguous space
Class A blocks of available contiguous space
450
2009
10,000 25,000 sf
King & Dufferin
25,000 50,000 sf
50,000 100,000 sf
100,000 200,000 sf
0
200,000 sf +
10,000 25,000 sf
25,000 50,000 sf
50,000 100,000 sf
100,000 200,000 sf
200,000 sf +
4
4
0
0
0
King & Dufferin
9
6
1
0
0
Core
256
202
176
139
69
Core
38
12
0
0
0
West
65
55
46
38
14
West
24
7
0
0
0
South
53
51
47
44
37
South
1
1
1
0
0
North
28
23
16
16
10
North
28
16
10
10
0
East
15
10
10
10
10
East
0
0
0
0
0
* Includes sublease space
* Includes sublease space
Source: AltusInsite
3. Jones Lang LaSalle Americas Research • Greater Toronto Office Insight • Q4 2013 3
GTA Submarket leverage – market condition and forecast
Property clock – current market conditions
Submarket
Peaking
market
Rising
market
2013
2014
2015
2016
Core
Tenant leverage
Landlord leverage
Downtown Toronto
Toronto
Falling
market
Bottoming
market
Downtown (excluding Core)
Midtown
GTA North
GTA East
GTA West
Landlord-favorable
conditions
Suburban Toronto
Balanced
conditions
Tenant-favorable
conditions
Q4 Completed lease transactions
Tenant
Address
Submarket
s.f.
Type
Sentry Select
199 Bay Street
Financial Core
46,000
New
LinkedIn
250 Yonge Street
Downtown North
37,000
New
Microsoft
222 Bay Street
Financial Core
26,142
Renewal
Oberfeld Snowcap Inc. 330 Bay Street
Financial Core
10,275
Sublease
Downtown Sublease Space Market
Downtown Toronto added a total of 522,618 square feet of sublease space to the market ending the fourth quarter with almost 1.5 million square feet of
available sublease space. A total of 193,214 square feet was subleased in the fourth quarter at an average space size of 6,700 square feet. This places
sublease absorption over the quarter at 328,954 negative square feet. The Financial Core remains the most active sublease market, containing more
than half of all current sublease listings. The Downtown South submarket, however, has the highest rate of sublease availability at 3.6 percent, with
subleases making up 73.0 percent of all available space. The largest sublease availabilities in the market are Allstream Canada’s seven year, 140,000
square feet seven floor sublease at 200 Wellington Street West and Manulife Financial’s eight year, 140,000 square feet seven floor sublease at 2
Queen Street East. Sublease space is expected to increase in the long term as tenants seek to upgrade in the favorable market conditions brought on
by the 5.0 million square feet of new office space coming to market through 2014 – 2017.
Downtown sublease space by lease expiration year
Distribution of available sublease space
11%
2019 +
3%
Financial Core
2017 thru 2018
Downtown East
Downtown North
19%
Downtown West
Downtown South
2015 thru 2016
King & Dufferin
2014
9%
0
10
20
30
40
50
60
70
80 s.f.
55%
3%
Source: AltusInsite
5. Brace for the
construction boom. In
2014, over 10.0 million
square feet will be
delivered to the national
office market.
Q4 2013 Canadian Office Market Overview
Continued urbanization will drive
downtown office leasing in 2014
23.0 million square feet under construction across the country
Full year 400,000 square feet of negative absorption nationally
National vacancy at 8.5 percent in the fourth quarter
National Office Report • Q4 2013
Jones Lang LaSalle Canada Research
1
6. Canadian economy
Global and national economic conditions
Global economic activity was stronger leading into the end of
2013, showing signs of growth and confidence that are expected
to carry into 2014. The United States posted stronger than
expected employment and income gains in the third quarter of
2013; consequently, the Federal Reserve trimmed its bondbuying program by $10.0 billion a month, from $85.0 billion to
$75.0 billion. U.S. GDP growth is expected to accelerate into
2014; forecasts have improved, projected at 1.8 percent for 2013
and 2.5 percent for 2014. The unemployment rate stands at 6.7
percent following a dismal December, as lower than expected
job growth numbers were reported for the month. The positive
outlook for the U.S. in 2014 will be driven by the upturn in private
consumption, residential construction and private investment;
both neighboring countries, Canada and Mexico, are expected to
benefit from these improved market conditions.
Excluding Brazil, the Eurozone was the weakest part of the
global economy in the third quarter, growing only 0.1 percent
quarter-over-quarter. Forecasts for the Eurozone’s GDP growth
in 2014 and 2015, however, remain encouraging, at 0.9 percent
and 1.6 percent respectively. The European Central Bank has
set the interest rate at a record-low benchmark of 0.25 percent in
order to stimulate the economy as downward pressure continues
on the current 0.8 percent inflation rate, which stands 120 basis
points below the 2.0 percent target rate.
The Bank of Canada’s (BoC) governor, Stephen Poloz,
continued to hold the target overnight rate at 1.0 percent. This
policy will remain in place if inflation remains muted and
imbalances in the household sector continue to improve. CPI
inflation rose 1.0 percent year-over-year for November, missing
the target rate of 2.0 percent by 100 basis points. With inflation
expectations well anchored, both core and total CPI inflation are
expected to slowly return to the 2.0 percent rate.
National Office Report • Q4 2013
Employment gains in 2013 were disappointing as Canada had
the slowest December year-over-year growth rate since 2009,
adding a merely 102,000 jobs or 0.6 percent over 12 months.
Employment fell by 46,000 jobs in the month of December,
increasing the unemployment rate by 0.3 percent to 7.2
percent. The Canadian GDP growth rate for 2013 has been
adjusted to 1.8 percent and forecasts for 2014 have increased
to 2.4 percent. Canadian growth in 2014 will be determined by
the approval of key export pipeline projects. The oil and gas
sector currently accounts for 25.0 percent of Canadian
exports, and could expand if Canada gains access to the
Asian market through the proposed pipeline projects along the
West Coast and Atlantic Canada.
The Canadian economy is anticipated to benefit from the
positive outlook on the United States in 2014. The cyclical
recovery of the U.S and a possible softening of the Canadian
dollar will allow Canada to benefit through exports. The
Canadian dollar will likely fluctuate around the low- to mid-90¢
(U.S) range; this is expected to increase foreign demand for
Canadian exports and reduce Canada’s $120.0 billion noncommodity trade deficit.
U.S housing starts jumped to 1.1 million units annualized in
November and is expected to increase to 1.4 million units by
2015. Construction starts for the Canadian housing market
cooled down in 2013, slowing to 188,200 units. The outlook for
2014 shows housing starts further declining to 180,000 units;
as several developers pull back projects to allow demand to
catch up with supply.
Jones Lang LaSalle Canada Research
2
7. Office market overview
National market conditions
The Canadian office market, stretching from Halifax in the east
to Vancouver in the west, saw an uptick of leasing velocity in
the last three months of the year after posting negative net
absorption in three consecutive quarters. Quarter over quarter,
net absorption totalled 200,000 square feet which while
positive, was not enough to offset the three previous quarters,
bringing 2013 net absorption to negative 400,000 square feet.
Looking back, we have not registered a full year with total
negative net absorption since the 2008 and 2009 recession
when the market shed close to 1.2 million square feet.
In Canada, overall leasing activity was notably stronger in the
suburban landscape while several downtown markets were in
the red for most of the year. Full year net absorption numbers
for the five largest office markets (Vancouver, Calgary,
Montréal, Ottawa and Toronto) were negative 1.7 million
square feet in downtown and positive 280,000 square feet in
the suburbs. Leasing activity is expected to pick up in 2014,
particularly in downtown markets as economic conditions and
the labour market improves. In addition, we expect certain
suburban markets to perform well, particularly markets with a
significant presence of U.S. companies and markets with
superior transit connectivity.
Despite overall positive absorption in the fourth quarter, the
national office vacancy rate increased for the sixth quarter in a
row to 8.5 percent, up 60 basis points quarter over quarter and
120 basis points year over year. Vacancy remains highest in
suburban markets, with the five largest office markets ending
the year with an overall vacancy rate of 11.7 percent while the
downtown rate was 6.1 percent. The overall vacancy rate
increase was primarily due to the completion of 26 office
projects in the fourth quarter, adding 3.3 million square feet of
which 2.5 million square feet were in suburban markets.
National Office Report • Q4 2013
We expect this trend to continue over the next few years as
the current office development cycle enters its completion
phase. Nationally, there is 23.0 million square feet in the
pipeline, or 4.7 percent of the total inventory, all slated for
completion through 2014 – 2018. Approximately 75.0 percent
of that space is downtown developments, while 25.0 percent is
suburban developments. To put this in perspective, in the
markets of Toronto, Calgary and Vancouver city wide stock
will increase by 5.0 to 11.0 percent.
Another noticeable increase over the past 12 months is the
amount of available sublease space. Nationally, the sublet
availability rate sits at 1.9 percent representing an increase of
2.8 million square feet year over year. The sublet availability
rate is particularly high in downtown markets. For example, in
downtown Calgary and Toronto the rate has almost doubled in
the past 12 months. This increase, coupled with development
completions and tenant movements to said completions is
creating large blocks of direct vacant space. These blocks are
putting pressure on landlords to either lower their net asking
rents or be more liberal with their concessions. Nationally,
overall rents are close to peaking or at the peak for this cycle,
thus shifting the office market from landlord-favourable to a
more neutral market. At the end of the fourth quarter national
average asking net rents were $16.14 per square foot, up from
$16.03 year over year, but slightly down when compared with
the previous quarter.
As shown in the JLL market clock on the following page,
several markets have passed the 12 o’clock mark and
ventured into the falling quadrant. We expect this trend to
continue as rents gradually decrease leading to more tenantfavourable conditions over the next three to four years.
Jones Lang LaSalle Canada Research
3
8. Canadian Office Property Clock
Q4 2013
Canada, Montréal
Toronto
Vancouver, Québec City
Calgary
Edmonton
Winnipeg
Ottawa
Rental growth
slowing
Rents
falling
Rental growth
accelerating
Halifax
Rents
bottoming out
Reading the clock
Jones Lang LaSalle’s office clock demonstrates
where each market sits within its real estate
cycle. Markets typically move clockwise around
the clock and markets on the left are generally
landlord-favourable, while those on the right
side of the clock tend to be tenant-favourable.
At the end of 2013, three major markets had
crossed the 12 o’clock position, signaling that
they had shifted from a rising to a falling market.
While Toronto and Calgary are still considered
landlord-favourable, we believe conditions will
convert to neutral and/or tenant-favourable over
the next three to four years. This anticipated
shift is in large part the result of new office
National Office Report • Q4 2013
developments, available sublet space and large
blocks of vacant space.
Canada as a whole has transitioned from the
2:30 position in 2009, 5:30 position at the end
of 2010 and the 8:00 position in 2011 to the
11:45 position in Q4 2013. JLL expects the
office markets in Montréal and Quebec City to
peak during the first quarter of 2014, pushing
the national office market to the falling rent
quadrant. It should be noted that positive
economic conditions and labour market outlook
could keep Canada at or close to peak for some
time.
Jones Lang LaSalle Canada Research
4
9. Calgary
• The overall vacancy rate increased 50 basis points to 7.7 percent quarter-over-quarter.
• Available sublet space accounted for over 40.0 percent of all available space in Calgary, an increase of 1.6 million
square feet year-over-year.
• 7.0 million square feet of new office space is in the pipeline with delivery dates through 2014 – 2018. The majority, 73.0
percent, is being built in Downtown Calgary.
Economy
• Alberta’s employment is expected to have grown by 2.8 percent in
2013 and come in at 2.4 percent in 2014.
• Calgary’s unemployment rate saw a slight uptick in December, up
10 basis points to 4.7 percent. Still among the lowest unemployment
rates in the country.
• According to forecasts by RBC economics, Alberta will lead the
country in real GDP with expected growth of 3.9 percent in 2014
and 3.5 percent in 2015.
Trends in Review and Outlook
• After three consecutive quarters of negative net absorption, the
Calgary office market finally crept back to positive territory with
close to 400,000 square feet of net absorption in the fourth quarter.
While positive, it was not enough to offset the three previous
quarters bringing the total net absorption for the year to negative
702,296 square feet.
• Despite Calgary’s overall positive net absorption, the total vacancy
rate increased 50 basis points to 7.7 percent quarter-over-quarter.
The increase in vacancy was primarily driven by the completion of
seven new buildings, adding close to 900,000 square feet to the
inventory and 150,000 square feet of available space, all in
suburban markets.
• With approximately 3.3 million square feet of forward leasing activity
through Q4 2013 and spilling over into the New Year, our view is
that the downtown market in 2017/2018 could be well poised to
realize vacancy rates considerably below equilibrium.
• However, our near term forecast suggests that tenants looking for
space are facing the most favorable market conditions witnessed in
the last 10 years.
• At the end of the fourth quarter, available sublet space accounted
for over 40.0 percent of all available space in Calgary, an increase
of 1.6 million square feet year-over-year.
• 7.0 million square feet of new Class A office space is under
construction, and assuming completion on time, will add over 11.0
percent to the citywide stock over the next five years. This
represents an unique opportunity for tenants to upgrade their
current office space to highly-efficient and modern spaces in both
Downtown and suburban Calgary. As of the fourth quarter 34.0
percent or 2.3 million square feet of the new construction was still
available for lease.
• In the near term, growing inventory and weaker market conditions
are placing downward pressure on rents, thus pushing the Calgary
wide office market towards more tenant-favourable conditions.
• Downtown Calgary, however, could be experiencing the beginnings
of a potentially rapid swing from a “Falling Market” to a “Rising
Market” on our property clock.
National Office Report • Q4 2013
Property Clock
Betline
Calgary
Downtown
Suburban
Peaking
market
Falling
market
Rising
market
Bottoming
market
Market
Vacancy ( %)
Absorption (s.f.)
Betline
13.7%
135,359
$17.05
Downtown
4.6%
-125,684
$28.55
North Calgary
9.6%
615,943
$17.50
South Calgary
15.1%
664,893
$19.20
Market Vitals
Net Asking Rate
Arrows represent change from prior quarter
Recent Deals
Address
Node
Tenant
Area (s.f.)
Brookfield Place
Downtown
Cenovus
1,000,000
Western Canadian Place
Downtown
Husky
800,000
Nexen Tower
Downtown
Nexen
600,000
Eighth Avenue Place West
Downtown
Pembina Pipeline
305,000
707 – 5th Avenue SW
Downtown
Brion Energy (Dover)
250,000
Scotia Centre
Downtown
Harvest Energy Trust
142,000
Jones Lang LaSalle Canada Research
5
10. Ottawa-Gatineau
• The Ottawa-Gatineau market is increasingly tenant-favourable and can offer great value to new users of office space.
• Landlords are reacting to trends of increasing vacancy rates and federal government downsizing by offering attractive
incentives to existing and potential tenants.
• Tepid growth is expected in the next year as the tech sector slowly rebounds and major government investments in
infrastructure begin to ramp up.
• The overall vacancy rate decreased to 5.5 percent and there was 100,011 square feet of net new space leased by
tenants in quarter four.
Economy
• Federal government employment has shrunk to 141,600
employees from 163,100 employees a year earlier. Employment
in this sector is expected to decrease by another 1.4 percent in
2014. This was counterbalanced by an improvement in tech
sector employment. It raised to 56,200 employees from 40,200 a
year ago.
• The overall unemployment rate is expected to have risen from 6.4
percent to 6.5 percent by the end of the fourth quarter.
• Although there are many big construction projects in the city such
as the Confederation Line LRT, rehabilitation of the center block
at Parliament Hill and four major investments in retail, construction
values decreased by 40.0 percent in December from a year
earlier.
• Residential construction has slowed down due to an oversupply of
condominium units and a negative outlook for employment in the
area. The average sale price increased by 1.6 percent in 2013 but
the number of sales decreased by 3.3 percent
• Real GDP is expected to lag behind other major metropolitan
cities in 2014 and is expected to be roughly 1.8 percent.
Trends in Review and Outlook
• The fourth quarter continued to show emerging trends in the
Ottawa-Gatineau market.
• The downtown market has been experiencing some of the highest
vacancies in the past 10 years. The main factor is considered to
be the government and private business not leasing additional
space, but right-sizing their office area.
• Attractive incentives in the Downtown Core have had a negative
impact on older B and C buildings in the Core and in Centretown.
Vacancy rates are high for these buildings and should produce a
very tenant-favourable market for users looking for this type of
space.
• Ottawa East and Gatineau remained relatively strong in quarter
four. New purpose built buildings in each node built for the
government may produce vacancies in the future as the
government consolidates their workforce in these new buildings.
• The technology-centric Ottawa West has seen some improvement
in the fourth quarter. As technology employment numbers
improve, companies are growing into new spaces. This, plus
some very aggressive incentives offered by landlords, have
brought down the vacancy rate in these suburban nodes. Expect
balanced conditions if employment continues to improve at this
same pace.
National Office Report • Q4 2013
Property Clock
Suburban East
Downtown Submarket
Gatineau
Peaking
market
Rising
market
Falling
market
Ottawa-Gatineau
Suburban West
Bottoming
market
Market Vitals
Market
Vacancy (%)
Absorption (s.f.)
Net Asking Rate
Ottawa
5.5%
101,011
$15.34
Downtown
5.1%
-77,003
$19.02
Suburban East
4.0%
14,030
$13.96
Suburban West
7.6%
147,001
$13.30
Gatineau
1.8%
15,983
$13.50
Arrows represent change from prior quarter
Recent Deals
Address
Node
Tenant
Area (s.f.)
150 Elgin Street
Downtown Core
Shopify
100,000
350 Legget Drive
Ottawa West
Conversant/Mossaid
43,000
275 Slater Street
Downtown Core
MBM
12,000
55 Metcalfe Street
Downtown Core
Mercer
10,000
Jones Lang LaSalle Canada Research
6
11. Montréal
•
•
•
•
•
The GMA ended 2013 with a quarter of weak leasing momentum, adding only 23,979 square feet in total occupied area.
New supply caused the total vacancy rate across the GMA to push over 10.0 percent.
Total vacancy in the Downtown submarket inched above 7.0 percent for the first time in over two years.
Midtown experienced negative net absorption (118,948 square feet) for the first time this year.
Although the fourth quarter brought good news, the suburban submarket’s performance remained polarized in 2013.
Economy
• Improvements to Montreal’s labour market remained modest this year
with the GMA adding only 42,300 new jobs.
• Although employment grew by roughly 2.1 percent during this period,
unemployment increased by 20.0 basis points to reach 8.3 percent.
• The increase in unemployment was a result of the active population
growing by 52,200 people, outpacing employment growth by nearly
9,900 workers.
• However, during the same period the GMA’s office employment
sector faired significantly better with total employment growing by
approximately 2.8 percent and adding 11,600 jobs.
Trends in Review and Outlook
• The GMA ended 2013 with another quarter of weak leasing
momentum, adding a meager 23,979 square feet in total occupied
area, bringing total YTD net absorption to 248,815 square feet.
• Leasing activity resulted in a 0.26 percent increase in total occupied
area in 2013, which is significantly lower then the 1.0 percent and 1.3
percent growth rates experienced respectively over the last two
years.
• Market conditions Downtown continue to lag in relation to the rest of
the GMA. Similar to five out of the six previous quarters, Downtown
experienced negative absorption in the fourth quarter of 2013.
• Net absorption for the quarter amounted to negative 164,689 square
feet, helping vacancy inch above 7.0 percent for the first time in over
two years.
• Weak leasing activity for 2013 has caused total occupied area
Downtown to compress by nearly 0.9 percent or negative 440,911
square feet.
• The Midtown market was, for the first time in 2013, the worst
performing submarket across the GMA during the quarter with net
absorption amounting to negative 118,948 square feet.
• However this year, the Midtown market remained the best performing
submarket adding nearly 518,338 square feet of additional occupied
area, representing a 2.4 percent growth from 2012.
• Weak market conditions and new supply this quarter have caused
total vacancy to inch up another 2.1 percent, bringing the total
increase this year to 4.4 percent. Total vacancy in the Midtown
market currently stands at 14.1 percent.
• Suburban submarkets performance remained polarized in 2013. On
one side, the South Shore saw a 5.1 percent growth in total occupied
area and bringing total vacancy down to 9.5 percent.
• On the other hand, the East End ended the year with negative 74,361
square feet of net absorption, a 3.1 percent compression in total
occupied area, causing total vacancy to approach 15.0 percent.
• The two remaining suburban submarkets, Laval and West Island, saw
little real growth in 2013 and continue to display high vacancy rates at
13.3 percent and 16.5 percent respectively.
National Office Report • Q4 2013
Property Clock
Montréal
Midtown
Laval
South Shore
Peaking
market
Rising
market
Downtown (excluding core)
Downtown Core
Falling
market
East End
Bottoming
market
Saint-Laurent
(West Island)
West Island
Market Vitals
Market
Vacancy (%)
Absorption (s.f.)
Net Asking Rate
Downtown
7.0%
-164,689
$15.34
Midtown
14.1%
-118,948
$12.08
Laval
13.3%
20,584
$13.71
South Shore
9.5%
72,940
$13.29
East End
15.0%
14,570
$12.80
West Island
16.5%
199,522
$12.03
Arrows represent change from prior quarter
Recent Deals
Address
Node
Tenant
Area
(s.f.)
1155 René-Lévesque W.
Downtown Core
Ultramar
45,043
1501 McGill College
Downtown Core
Bank of Montreal
43,427
1002 Sherbrooke W.
Downtown Core
BCA Research
21,754
1050 Beaver Hall
Downtown Core
Alphanumeric Systems
15,841
Jones Lang LaSalle Canada Research
7
12. Downtown Toronto
• Forecasts for Ontario’s economy anticipate GDP growth of 2.6 percent in 2014 and 2.9 percent in 2015 with a
recovering U.S. economy and a stronger manufacturing sector.
• Downtown Toronto vacancy increased 0.9 percent from last quarter, ending the year at 6.5 percent.
• Leasing activity continued to remain subdued as tenants wait in anticipation for the arrival of new office developments.
Thus far, 750,000 square feet of new space has entered the market in Toronto’s office growth boom.
Economy
• Ontario’s economy is expected to accelerate over the next two years,
with RBC Economics predicting GDP growth of 2.6 percent in 2014
and 2.9 percent in 2015, citing a stronger manufacturing sector and
U.S. economy as catalysts.
• The 2013 GDP growth of 1.3 percent was largely attributable to the
vibrant service sector and limited by the weakness of the
manufacturing sector.
• The provincial unemployment rate is expected to drop 40 basis points
to 7.1 percent by the end of 2014 and a further 20 basis points to 6.9
percent by 2015.
Trends in Review and Outlook
• Conditions in the downtown core will soon see the effects of the 5.0
million square feet of new Class A office space currently under
construction. Eight developments are scheduled for completion with
dates ranging from late 2014 through 2017.
• The Mars Discovery Centre Phase II was completed and added to the
downtown inventory in the fourth quarter, the only construction
completed in 2013. This sciences-targeted development at 661
University Avenue added 750,000 square feet of space to the
Downtown Toronto supply and served as a large contributor to the 90
basis point increase in vacancy over the quarter with 400,000 square
feet of space still available in the building.
• Vacancy rates, as the new developments come to market, are
expected to continue to increase. In the Class A market, rates surged
130 basis points over the quarter to match downtown Toronto`s
overall 6.5 percent rate. In the Class B market, rates increased a
modest 30 basis points to 5.7 percent.
• Surprisingly, despite the increase in vacancy in quarter four, average
Class A and B rents showed small increases to $23.70 and $19.42
per square foot respectively. Through 2014 these rates are expected
to decrease as landlords seek to attract tenants in a diverse and high
supply market. Tenants could also see significant benefits in the form
of cash allowances and free rent periods.
• Downtown Toronto did experience positive absorption of 55,000
square feet in quarter four however this did little to offset the annual
negative absorption total of 667,859 square feet. In comparison, total
absorption for 2012 was positive 537,516 square feet.
• As the market moves towards more tenant-favorable conditions,
activity is expected to decline while some tenants wait to secure the
best possible rates. Lower rates in the Core will present tempting
relocation options for companies in the suburbs looking to consolidate
and secure a downtown location. An influx of new companies into
Downtown Toronto could mean competition for tenants already here
and the positive economic outlook with ideal leasing conditions will
make Toronto an attractive location for companies interested in
entering Canada.
National Office Report • Q4 2013
Property Clock
Downtown South
Downtown West
King & Dufferin
Peaking
market
Rising
market
Downtown Toronto
Financial Core
Falling
market
Bottoming
market
Downtown East
Downtown North
Market Vitals
Market
Vacancy (%)
Absorption (s.f.)
Net Asking Rate
Downtown East
7.4%
-17,474
$19.02
Downtown North
9.1%
144,430
$17.59
Downtown South
4.4%
-55,619
$19.55
Downtown West
6.1%
-172,389
$19.29
Financial Core
5.5%
138,458
$22.45
King & Dufferin
9.2%
18,406
$18.02
Arrows represent change from prior quarter
Recent Deals
Address
Node
Tenant
199 Bay Street
Financial Core
Stikeman Elliott LLP
199 Bay Street
Financial Core
Sentry Select
250 Yonge Street
Downtown North
LinkedIn
222 Bay Street
Financial Core
Microsoft
Area (s.f.)
46,615
26,142
Jones Lang LaSalle Canada Research
8
13. Suburban Toronto
• In quarter four, the vacancy rate was 13.6 percent in Toronto West, 7.6 percent in Toronto North and 11.7 percent in
Toronto East
• Toronto East saw 257,753 square feet of negative net absorption, followed by Toronto North with negative 87,315
square feet and Toronto West with 79,564 square feet.
• Don Mills & Eglinton was the weakest submarket with 361,2709 square feet of negative net absorption
Economy
• Ontario’s economy is expected to accelerate over the next two years.
RBC Economics predicts GDP growth of 2.6 percent in 2014 and 2.9
percent in 2015, citing a stronger manufacturing sector and U.S.
economy as catalysts.
• Ontario’s unemployment rate is expected to drop 40 basis points to
7.1 percent by the end of 2014 and a further 20 basis points to 6.9
percent by 2015.
• The 2013 GDP growth of 1.3 percent was largely attributable to the
vibrant service sector and limited by the weakness of the
manufacturing sector.
Trends in Review and Outlook
• Vacancy in the Greater Toronto Area (GTA) suburban market
continued to trend upwards reaching 12.0 percent in the fourth
quarter of 2013. From 2009 to 2012 vacancy in the suburban market
has ranged from 10.0 percent and 11.0 percent, which was up from
the low of 7.8 percent in 2008.
• The Airport Area was another weak submarket with 230,580 square
feet of negative net absorption, the majority of which came from the
Airport Corporate Centre.
• Toronto West leads the suburbs with 1.2 million square feet of
available sublet space, followed by the East with 0.5 million square
feet and the North with 0.3 million square feet.
• Meadowvale was the strongest submarket with almost 200,000
square feet of positive absorption.
• Although North Yonge remained one of the tightest suburban markets
in terms of vacancy, the vacancy rate jumped 170 basis points to 7.4
percent in quarter four.
• GTA West currently has 1.6 million square feet of office space
currently under construction, of which 661,536 square feet, or 42.2
percent, is available for lease.
• The vacancy rate in the GTA North increased by 130 basis points in
quarter four to 7.6 percent, which is the highest rate since Q1 2010.
This vacancy increase was primarily due to the completion of the two
new buildings in Vaughan, which totaled 105,000 square feet of new
office space.
• The P&G building at 4711 Yonge Street is one of the largest and
newest subleases to hit the market with approximately 100,000
square feet over five non-contiguous floors.
• The GTA West is the dominant sublease market with 53.0 percent of
sublease availabilities, followed by the GTA East with 31.0 percent
and the GTA North with 16.0 percent.
• Net rent remained relatively steady, with an net asking rate of $14.75
per square foot in the GTA West, $16.43 in the GTA North and
$12.64 in the GTA East.
National Office Report • Q4 2013
Property Clock
North Yonge
Markham
Peaking
market
Rising
market
Falling
market
Bottoming
market
Oakville/Burlington
Meadowvale
Airport Area
Mississauga City Centre
Suburban Toronto
Market Vitals
Market
Vacancy ( %)
Absorption (s.f.)
Net Asking Rate
Meadowvale
10.1%
199,088
$15.95
Airport Area
18.8%
-230,580
$13.52
Mississauga City
Centre
15.5%
-20,146
$16.44
North Yonge
7.4%
-140,791
$18.20
Markham
10.1%
-87,520
$14.91
Oakville/Burlington
15.7%
135,149
$16.48
Arrows represent change from prior quarter
Recent Deals
Address
Node
Tenant
Area
(s.f.)
2920 Matheson Blvd E
Airport Corporate
Centre
Bayer
134,000
7100 West Credit Ave.
Meadowvale
WorleyParsons
95,800
3450-3470 Superior Crt
Oakville
Amerisource Bergen
60,000
75 Courtney Park Dr W
Heartland
KAO Group
38,000
Jones Lang LaSalle Canada Research
9
14. Vancouver
• Metro Vancouver office vacancy increased by 170 basis points over the previous quarter to 8.9 percent.
• The Suburban market experienced its fifth consecutive quarter with negative net absorption, increasing the vacancy rate
to 12.8 percent.
• Downtown sublease availability increased from 1.8 percent to 2.4 percent, which is significantly higher than the 10 year
average availability rate of 1.3 percent.
• In comparison to other major markets, there continues to be limited options for multi-floor tenants in the Downtown Core
looking for Class A office space.
Economy
• British Columbia’s GDP growth is expected to be 2.7 percent in 2014,
followed by one of the highest in Canada in 2015 at 3.1 percent.
• The unemployment rate in Vancouver has dropped 40 basis points
over the previous year to 6.3 percent. This trend is on pace to
continue as real wage gains supported by low inflation and federal
shipbuilding contracts are expected to boost consumer spending and
job creation.
• Improving economic conditions in the United States combined with
strong international demand for B.C.’s natural resource industries
should increase consumer and business confidence moving into
2014.
Trends in Review and Outlook
• Demand for office space throughout Metro Vancouver remained
relatively slow during the fourth quarter.
• Metro Vancouver experienced year-to-date negative net absorption
for the first time since 2009, with approximately 300,000 square feet
of negative net absorption in the fourth quarter alone.
• As several larger Class A tenants in the Downtown Core prepare to
move into new buildings upon completion, significant backfill
opportunities remain available.
• Seven new Downtown office developments totaling approximately 2.7
million square feet are currently 43.0 percent pre-leased.
• The 445,000 square foot TELUS Garden is now 93.0 percent preleased following a significant pre-lease to a technology company.
• Law firm Miller Thomson became the first tenant to commit to Cadillac
Fairview’s redevelopment at 725 Granville and will take 48,000
square feet of a 75,000 square foot floor plate upon completion.
• Credit Suisse building 369,000 square foot LEED Platinum Standard
tower on Howe Street despite 0.0 percent pre-leased.
• Cadillac Fairview announced a new 350,000 square feet waterfront
office tower on their site next to The Station on West Cordova Street.
• Richmond vacancy increased by 60 basis points to 14.2 percent
during the fourth quarter, and the submarket is currently responsible
for 33.7 percent of all sublease space available in the suburban
market.
• Notable transactions in the fourth quarter include the Arts and Crafts
Building on Seymour Street for $15,200,000 ($434 p.s.f.) and 1770
West 7th Avenue in the Broadway Corridor for $32,625,000 ($436
p.s.f.)
• The Vancouver Periphery experienced limited volatility during the
fourth quarter of 2013. Year-to-date total net absorption was positive
6,757 square feet and office space availability only marginally
increased from 7.4 percent to 7.8 percent during the year. There was
72,527 square feet of new office supply added to the market during
the year, 100 percent of which has been fully leased.
National Office Report • Q4 2013
Property Clock
Downtown
Vancouver
Broadway Corridor
Peaking
market
Burnaby
New Westminster
Falling
market
Surrey
North Shore
Bottoming
market
Rising
market
Richmond
Langley
Market Vitals
Market
Vacancy (%)
Absorption (s.f.)
Net Asking Rate
Downtown
6.0%
-202,576
$23.58
Broadway Corridor
6.9%
-25,182
$20.88
Burnaby
9.1%
-181,453
$16.90
Richmond
14.2%
36,785
$14.59
Surrey
25.5%
-120,121
$16.13
North Shore
7.1%
-6,610
$19.67
New Westminster
7.5%
-8,216
$16.76
Langley
20.5%
24,641
$17.87
Arrows represent change from prior quarter
Recent Deals
Address
Node
Tenant
Area
(s.f.)
520 West Georgia Street
Downtown
Confidential Tenant
156,000
550 Burrard Street
Downtown
Teekay Corporation
52,900
1700 West 75th Avenue
Broadway Corridor
Canfor
50,000
10271 Shellbridge Way
Richmond
Top Producer
48,600
Jones Lang LaSalle Canada Research
10
15. Canadian Office Market Statistics
Key Office Markets
Fourth Quarter
2013
Inventory (s.f.)
Quarterly total
net absorption
(s.f., including
subleases)
YTD total net
absorption
(s.f., including
subleases)
YTD total net
absorption
( % of
inventory)
Total Vacancy
( %)
Average Gross
marketed rent
($ PSF)
Under
Construction
and Committed
(s.f.)
18,492,394
427,998
727,283
3.9%
6.4%
$21.70
173,829
2,309,170
4,551
26,357
1.4%
13.4%
$26.90
0
44,859,518
100,011
428,189
1.0%
5.5%
$31.22
1,446,595
9,372,736
490
393,653
4.2%
3.5%
$50.08
930,598
63,784,522
1,290,511
-102,708
-0.2%
7.7%
$45.21
7,024,021
28,896,317
-68,664
65,941
0.2%
2.9%
$55.44
5,131,839
23,228,350
90,522
167,850
0.7%
7.5%
$33.84
338,926
11,023,249
85,197
198,637
1.8%
6.1%
$39.28
0
52,247,799
-513,873
-308,558
-0.6%
8.9%
$38.03
4,248,557
13,336,532
-179,706
-284,146
-2.1%
5.3%
$55.76
1,937,977
171,653,463
-252,192
-1,002,574
-0.6%
9.2%
$29.48
7,084,489
45,120,320
111,181
-297,699
-0.7%
6.5%
$47.43
5,108,908
10,642,786
12,498
86,144
0.81%
6.2%
$23.71
85,000
3,477,581
10,618
54,771
1.6%
3.5%
$30.65
85,000
92,619,056
23,979
248,815
0.3%
10.2%
$26.55
2,750,545
23,124,284
-185,934
-291,385
-1.3%
7.5%
$40.57
1,226,923
9,738,479
310,408
-91,444
-0.8%
8.7%
$27.32
307,126
1,375,075
114,955
-3,664
-0.3%
8.4%
$34.14
280,126
487,266,367
1,489,862
-1,226,221
0.0%
8.5%
$31.80*
23,459,088
Quebec City
Downtown 'A'
Ottawa
Downtown 'A'
Calgary
Downtown 'A'
Edmonton
Downtown ‘A’
Vancouver
Downtown 'A'
Toronto
Downtown 'A'
Winnipeg
Downtown 'A'
Montreal
Downtown 'A'
Halifax
Downtown ‘A’
Canadian major
market total
*Weighted Average
Source: Altus Insite, Jones Lang LaSalle Research
National Office Report • Q4 2013
Jones Lang LaSalle Canada Research
11