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Q1 2016 cresa market report

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Commercial Real Estate Market Report from Cresa Toronto

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Q1 2016 cresa market report

  1. 1. The Tenant’s Perspective GREATER TORONTO AREA OFFICE MARKET REPORT Q1 2016 CRESA TORONTO INC., BROKERAGE 170 University Avenue Suite 1100 Toronto, ON M5H 3B3 416.862.2666 Connect with us and get up-to-date information: @CresaToronto cresa.com/toronto
  2. 2. Table of Contents 3 GTA 5 Downtown Toronto 7 Midtown Toronto 9 GTA North 11 GTA East 13 GTA West 15 About Cresa Page 2 DISCLAIMER The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Cresa Toronto Inc., Brokerage. Acknowledgement: Data for graphs, charts and tables used in this report are sourced from Cresa Toronto Inc., Brokerage and CoStar. Some of the data in this report has been gathered from third party sources and has not been independently verified by Cresa Toronto Inc., Brokerage. Cresa Toronto Inc., Brokerage makes no warranties or representations as to the completeness or accuracy thereof.
  3. 3. Page 3 GTA MARKET UPDATE AVAILABILITY 2015 Q4 2016 Q1 Midtown Toronto 6.6% 7.0% Downtown Toronto 8.2% 8.8% GTA North 8.6% 7.3% GTA East 10.0% 10.4% GTA West 14.7% 14.6% OVERALL 9.8% 9.9% While all five major nodes across the GTA experienced positive absorption in Q1, the vacancy rate remained unchanged at 7.2% for the third consecutive quarter. This was due to the overall absorption of 1,806,111 SF being offset by 1,734,200 SF of new supply that was added to the market. After the delivery of Bay Adelaide East in the Down- town Node, the amount of space under construction decreased to 4,722,179 SF, the lowest it has been in the last 3 years. Just over 3.1 million square feet of this space is scheduled to be delivered to the market over the balance of the year, which will put considerable up- ward pressure on vacancy rates. There are a number of ‘proposed’ buildings, especially in tighter markets such as Downtown West, that will likely transition to ‘under construction’ over the next couple of quarters as larger tenants in these markets do not have a significant num- ber of options in existing buildings that can accommo- date their needs. At 14.6%, Toronto West continues to have the highest availability rate across the GTA while Toronto East ex- hibits the second highest availability rate. Tenants with- in these nodes are in a good position as they will have a number of options to choose from and landlords are offering aggressive inducement packages in order to compete and attract new tenants. The most notable investment transaction in Q1 was Crown Realty Partners and Crestpoint Real Estate Investments joint purchase of the Allstate Corporate Centre in Markham. The 575,000 square foot complex was 93% leased and the purchase price of $148.55 million represented a cap rate of approximately 6.5%. DISTRIBUTION OF AVAILABILITY TENANT’S PERSPECTIVE • As the availability rate across the GTA approaches 10%, most tenants will find that they have many options when looking for space and aggressive landlords that will compete for good tenancies • Some subnodes, such as Downtown West, cannot accommodate larger users except in ‘proposed’ buildings SquareFeet 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Downtown Midtown Toronto North Toronto East Toronto West Class A Class B Class C
  4. 4. Page 4 MARKET TRENDS SIGNIFICANT AVAILABILITIES 04. 315 Front Street W 326,560 SF 07. 2200-2206 Eglinton Ave E 254,235 SF 06. 222 Bay Street 271,905 SF 08. 181 Bay Street 246,179 SF 01. 1150 Eglinton Ave E 403,981 SF 02. 661 University Ave 398,820 SF 03. 40 King Street W 339,054 SF NOTABLE LEASE TRANSACTIONS RBC Financial Core 185,733 SF Capital One Consumers 42,584 SF Fresenius Kabi ACC/Airport 25,600 SF BMO Outer Financial Core 22,907 SF The Ian Martin Group Oakville 22,340 SF NOTABLE SALE TRANSACTIONS 11/15/17/27 Allstate Parkway & 80 Frontenac Drive 1,018,087 SF $148,600,000 $146 PSF 1200 Bay Street 120,989 SF $86,750,000 $717 PSF 1 St. Clair Avenue E 81,694 SF $35,000,000 $428 PSF 381-387 Richmond Street E 44,871 SF $26,000,000 $579 PSF 1100 Burloak Drive 472,973 SF $64,750,000 $137 PSF 363 Adelaide Street E 2,000 SF $1,479,000 $740 PSF 75 International Blvd 89,559 SF $8,500,000 $95 PSF UNDER CONSTRUCTION W Completion 1 1 York Street Sep 2016 2 351 King Street East Oct 2016 3 Bay Adelaide East Jun 2017 05. 22 Adelaide Street W 299,701 SF VacancyRate SquareFeet Forecast 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% -500,000 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Deliveries Absorption Vacancy
  5. 5. Page 5 Downtown Toronto MARKET UPDATE AVAILABILITY Q2 Q3 Financial Core 10.90% 11.90% Outer Financial Core 7.70% 7.00% Downtown North 6.20% 6.40% Downtown South 6.20% 18.10% Downtown East 6.10% 4.80% Downtown West 6.80% 6.70% King/Dufferin 10.30% 8.00% OVERALL 8.60% 9.40% Downtown Toronto continues to be the hub of ac- tivity for the GTA, reporting a positive absorption of 453,341 square feet and 178 leasing deals. The construction pipeline remains healthy with 9 build- ings and 4.3 million square feet under construction. The latest quarter continues to see an increase in gross rent up $0.47 PSF, which has been the trend over the last 2 years. Surprisingly, of the seven subnodes in Downtown Toronto, the Financial Core is suffering from the larg- est availability rate of 10.9% surpassing that of the overall GTA which sits at 9.9%. This availability is focused on the larger AAA bank towers within the Core, which is in desperate competition with newer A class assets within the Financial and South core. As the trend to migrate to Downtown continues, the positive absorption trend will also likely continue at the detriment of the suburban office market. This does not necessarily indicate that the new supply will be fully absorbed and there will likely be an up- tick in vacancy rates downtown as buildings come to completion. TENANT’S PERSPECTIVE • New supply will continue to push landlords to compete for larger tenants with strong covenants • Downtown West and Downtown East supply remains tight as strong demand of brick and beam assets continues • Great opportunities available in AAA class assets within the Financial Core DISTRIBUTION OF AVAILABILITY Page 5 Downtown Toronto AVAILABILITY 2015 Q4 2016 Q1 Financial Core 10.1% 10.7% Outer Financial Core 5.8% 5.7% Downtown North 6.3% 6.6% Downtown South 10.5% 13.1% Downtown East 5.2% 4.5% Downtown West 6.1% 6.3% King/Dufferin 6.4% 7.2% OVERALL 8.2% 8.8% Despite 578,033 SF of positive absorption in Q1, Avail- ability and Vacancy in the Downtown node remained relatively flat with only a 0.6% increase in availabili- ty and a 0.4% increase in vacancy. This was mainly attributable to the delivery of the 1,048,319 SF Bay Adelaide Centre. Downtown East supply remains extremely tight with only 4.5% of available space despite the expected de- livery of 351 King Street East in October, which still has 50,000 SF of available space, representing 25% of the subnodes entire availability. Allied Properties REIT is taking advantage of the lim- ited supply of large blocks in Downtown West by ac- tively pursuing new development and intensification projects such as 620 King Street West, the King Port- land Centre, where Shopify will occupy 44% of the project, and THE WELL project which is a mixed use community to be located at the north west corner of Front Street West and Spadina Avenue. As expected, Downtown was the leader in the number and size of transactions in Q1, which resulted in the highest positive absorption across the GTA. Tenants are continuing to look at Downtown for its access to a young, talented labour pool that is becoming harder to find in the suburban markets. TENANT’S PERSPECTIVE • Leasing activity remains healthy Downtown with strong demand for Downtown East and Downtown West assets • Older Class A buildings continue to find it difficult to compete against new construction DISTRIBUTION OF AVAILABILITY MARKET UPDATE 0 50 100 150 200 250 0-5k 5-10k 10-20K 20-50K 50K+ Class A Class B Class C SquareFeet
  6. 6. Page 6 MARKET TRENDS SIGNIFICANT AVAILABILITIES 01. 661 University Ave 398,820 SF 02. 40 King Street W 339,054 SF NOTABLE LEASE TRANSACTIONS RBC Financial Core 185,733 SF Labatt Downtown South 60,000 SF Sunlife Financial Downtown South 53,456 SF Nike Downtown West 22,979 SF BMO Outer Financial Core 22,907 SF NOTABLE SALE TRANSACTIONS 381-387 Richmond Street East 44,871 SF $26,000,000 $579 PSF 363 Adelaide Street East 2,000 SF $1,479,000 $740 PSF 103 Church Street 19,599 SF $7,000,000 $357 PSF 59 Mutual Street 7,412 SF $8,500,000 $1,147 PSF UNDER CONSTRUCTION Completion 1 1 York Street Sep 2016 2 130 Queens Quay Sep 2016 3 351 King Street East Oct 2016 4 20 Wellington Street East Jun 2017 5 100 Adelaide Street West Jun 2017 08. 320 Bay Street 215,958 SF 04. 22 Adelaide Street W 299,701 SF 03. 315 Front Street W 326,560 SF 07. 150 King Street W 240,024 SF 05. 222 Bay Street 271,905 SF 06. 181 Bay Street 246,179 SF VacancyRate SquareFeet 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% -400,000 -200,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Deliveries Absorption Vacancy Forecast
  7. 7. Page 7 Midtown AVAILABILITY 2015 Q4 2016 Q1 Bloor 5.2% 5.7% St. Clair 6.0% 5.4% Eglinton 10.0% 10.7% OVERALL 6.6% 7.0% The Bloor and St. Clair nodes have traditionally been an area of limited availability, due primarily to very limited inventory as well being located in an area of easy accessibility. This continues to hold true with availability rates for Bloor and St. Clair subnodes be- ing 5.7% and 5.4% respectively. The Eglinton market has a greater amount of availability as compared to its midtown counterparts with 10.7%, however, the Eglinton node will increasingly become more attrac- tive as the Eglinton Crosstown line nears completion. With a projected completion date of 2020, we can expect proposed developments to start construction in 2017/2018. Currently, there are three proposed buildings that will add 733,000 SF of inventory. Slate Asset Management recently acquired 1 St Clair Avenue East from Scotiabank, the latest piece of an office-tower portfolio that gives the firm ownership of all four corners of Yonge and St Clair. Slate pre- viously aquired 1 St. Clair Avenue West from Evton Capital Partners, and 2 St. Clair Avenue East and 2 St. Clair Avenue West from GE. Slate`s goal is to revitalize an aging intersection including moderniza- tion of building entrances, lobbies, retail podium and facades. Overall the Midtown node was very active in Q1 and experienced positive absorption of 187,849 SF, its the largest increase in the last 3 years. TENANT’S PERSPECTIVE • Slate continues to monopolize the St. Clair node with its eye on revitalizing the area • St. Clair and Bloor subnodes continue to have limited availability, leaving few options for tenants DISTRIBUTION OF AVAILABILITY MARKET UPDATE 0 10 20 30 40 50 60 70 80 90 100 0-5k 5-10k 10-20K 20-50K 50K+ Midtown Class A Midtown Class B Midtown Class C Toronto
  8. 8. Page 8 MARKET TRENDS SIGNIFICANT AVAILABILITIES 07. 20 Eglinton Avenue W 60,865 SF 06. 2 Bloor Street W 66,539 SF 05. 80 Bloor Street W 87,847 SF 08. 151 Bloor Street W 60,479 SF 01. 2 St. Clair Avenue W 119,849 SF 02. 2300 Yonge Street 108,297 SF 04. 7 St. Thomas Street 93,948 SF 03. 50 Charles Street E 99,000 SF NOTABLE LEASE TRANSACTIONS Turner & Townsend St. Clair 10,000 SF Strategic/Ampersand Bloor 5,159 SF Consulate General of Spain Bloor 5,063 SF World Society for the Protection of Animals Eglinton 3,809 SF NOTABLE SALE TRANSACTIONS 1 St. Clair Avenue East 81,694 SF $35,000,000 $428 PSF 1200 Bay Street 120,989 SF $86,750,000 $717 PSF UNDER CONSTRUCTION Completion 1 2300 Yonge Street (Addition) Mar 2016 2 7 St. Thomas Street Sep 2016 3 50 Charles Street East Dec 2016 VacancyRate SquareFeet 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000 250,000 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Deliveries Absorption Vacancy Forecast
  9. 9. Page 9 AVAILABILITY 2015 Q4 2016 Q1 North Toronto Region 10.5% 9.8% North Yonge Corridor 8.7% 8.3% Vaughan 9.0% 8.6% North York West 8.1% 4.8% OVERALL 8.6% 7.6% The Toronto North node experienced its third consecu- tive quarter of positive absorption with 197,000 SF in Q1 2016. Availability rates dropped a full percentage point to 7.6% to end the quarter. As part of the Vaughan Metropolitan Centre (VMC) 442 acre redevelopment, Vaughan introduced the KPMG Tower with 365,000 SF of which 200,000 SF is still avail- able for lease. Currently, there are two other buildings under construction, 7777 Weston Road and 1275 Finch Avenue West for a total 300,000 SF. Vaughan continues to push its work, live, play agenda. The North Yonge Corridor, which runs along Yonge street and extends from York Mills Road/Wilson Avenue north to Steeles Avenue, accounted for 94,889 SF of the 197,000 SF of positive absorption for the node. Leasing activity was as its highest level in the last two years, as the gross rental rate inched up for the second consecu- tive quarter to $40.02 PSF from $39.81 PSF. Overall, Toronto North is a well balanced market which has averaged quarterly absorption of 40,000 SF over the last few years, with availability rates just below that of the GTA average. It is expected that activity will pick up with the completion of the TTC subway station at Highway 7 and Highway 400, expected for late 2017. TENANT’S PERSPECTIVE • Development of Vaughan Metropolitan Centre (VMC) is creating a suburban opportunity to ‘work, live, play’ • Toronto North is becoming more accessible than ever with the introduction of the Spadina TTC subway extension DISTRIBUTION OF AVAILABILITY GTA North MARKET UPDATE 0 20 40 60 80 100 120 0-5k 5-10k 10-20K 20-50K 50K+ Class A Class B Class C
  10. 10. MARKET TRENDS SIGNIFICANT AVAILABILITIES 04. 5140 Yonge Street 80,833 SF 08. 5775 Yonge Street 43,665 SF 06. 5255 Yonge Street 58,573 SF 01. KPMG Tower 198,820 SF 02. 4711 Yonge Street 144,002 SF 03. 4101 Yonge Street 128,292 SF 07. 3080 Yonge Street 52,552 SF 05. 100 Sheppard Ave E 78,239 SF UNDER CONSTRUCTION Completion 1 35 Tangiers Road Jun 2016 2 7777 Weston Road Sep 2016 VacancyRate SquareFeet Page 10 * No Notable Lease Transactions 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% -100,000 -50,000 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Deliveries Absorption Vacancy Forecast NOTABLE LEASE TRANSACTIONS NOTABLE SALE TRANSACTIONS 250 Canarctic Drive West 27,494 SF $3,150,000 $115 PSF
  11. 11. Page 11 AVAILABILITY 2015 Q4 2016 Q1 Consumers 16.0% 15.3% DVP North/Duncan Mill 7.4% 2.8% DVP South/Don Mills/Eglinton 14.8% 15.1% East Toronto Region 5.7% 5.7% Gordon Baker/Victoria Park 8.7% 9.4% Markham/Richmond Hill 9.8% 9.8% Scarborough 7.7% 12.7% South East Toronto Region 11.6% 10.3% Steeles/Woodbine 9.8% 9.0% OVERALL 10.4% 10.5% The Toronto East node witnessed a drop in vacancy dipping to 8.4% versus 9.0% from the previous quar- ter. This was mainly attributed to the strongest quar- terly absorption in over a year with 270,313 SF and a lack of new deliveries in Q1 2016. Construction activity is slow with only 4 properties and 483,925 SF currently underway. Delivery of the Aviva building at 7980 Birchmount Road in Markham is expected in April, adding 370,000 SF, with 81,000 SF still avail- able to the market. The struggling Consumers Road node received some attention with Capital One signing a 42,584 SF lease for their call centre operations. This trans- action helped lower the availability rate from 16.0% to 15.3%. Despite the transaction, the Consumers Road node still has significant availabilities in Atria II, 235 Yorkland Blvd and 251, 255 and 250 Consumers Road, all with availabilities greater than 25%. DVP South/Don Mills/Eglinton continues to be an area of heavy competition with an availability rate of 15.1%, which is up slightly from 14.8% from the previous quarter. There is currently no new devel- opment under construction and there has not been since Q1 2015. TENANT’S PERSPECTIVE • Landlords in the Consumers Road node offering very aggressive packages for Tenants of all sizes • Despite proximity to Highway 401 and Sheppard Subway line, demand remains relatively muted for the Consumers Road node DISTRIBUTION OF AVAILABILITY GTA East MARKET UPDATE 0 50 100 150 200 250 0-5k 5-10k 10-20K 20-50K 50K+ Class A Class B Class C
  12. 12. Page 12 MARKET TRENDS SIGNIFICANT AVAILABILITIES 07. 169 Enterprise Ave 85,800 SF 06 789 Don Mills Rd 87,259 SF 05. 2235 Sheppard Ave E 90,886 SF 01. 1150 Eglinton Ave E 403,981 SF 08. 111 Gordon Baker Rd 82,262 SF 04. 101 McNabb St 154,000 SF 03. 1-3 Concorde Gate 164,943 SF NOTABLE LEASE TRANSACTIONS Capital One Consumers 42,584 SF Reliance Home Comfort Consumers 37,000 SF Everlink Payment Services Markham/Richmond Hill 17,905 SF Marketplace DVP South/Don Mills/ Eglinton 4,718 SF NOTABLE SALE TRANSACTIONS Allstate Corporate Centre & 80 Frontenac Drive 101,809 SF $14,860,000 $146 PSF 75 Commerce Valley Drive East 81,290 SF $12,100,000 $149 PSF UNDER CONSTRUCTION Completion 1 7980 Birchmount Road Apr 2016 2 Hwy 7 & South Park Road Sep 2016 3 2201 Markham Road Oct 2016 4 833 Passmore Avenue Dec 2016 5 300 Silver Star Boulevard Dec 2016 VacancyRate SquareFeet 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% -400,000 -300,000 -200,000 -100,000 0 100,000 200,000 300,000 400,000 500,000 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Deliveries Absorption Vacancy Forecast 02. 2200-2206 Eglinton Ave E 254,235 SF
  13. 13. Page 13 GTA West AVAILABILITY 2015 Q4 2016 Q1 427 Corridor/Bloor/Islington 19.5% 20.1% Airport Corporate Centre/Airport 19.7% 19.8% Brampton 8.4% 10.2% Burlington 14.4% 14.5% Mississauga City Centre 15.8% 14.6% Hwy 10/Hwy 401 11.5% 12.4% Meadowvale 19.4% 18.5% Mississauga South 6.7% 7.2% Oakville 14.1% 14.4% West Toronto Region 8.1% 7.3% OVERALL 14.8% 14.7% The Toronto West node continues to suffer from the highest overall availability and vacancy rates in the GTA of 14.7% and 11.6% respectively. The Class A assets have the highest availability at 18% forcing inducements to attract tenants. This has resulted in 248,934 SF of positive absorption to kick off 2016 re- sulting in the highest quarterly absorption over the last 2 years. Despite the high availability rate, Toronto West still has a number of projects under construction slated for completion this year, totalling 613,000 SF. 5 of the 8 buildings are located on Speers Road in Oakville and account for 240,000 SF. LaSalle Investment Management completed the pur- chase of the Burloak Towers for $64,750,000, which includes a portfolio of four office buildings in Burling- ton. The 435,000 SF complex comprised of 1100 Bur- loak Drive and 5575, 5515 and 5420 North Service Road is 83% leased to tenants that include a variety of large financial, pharma and technology companies. It is expected that LaSalle Investment Management will introduce a number of capital improvements including modernization of lobbies and new roofs among other upgrades. TENANT’S PERSPECTIVE • Tenants continue to have many options throughout most subnodes in Toronto West • Landlords continue to entice Tenants with large inducement packages DISTRIBUTION OF AVAILABILITY MARKET UPDATE 0 50 100 150 200 250 300 350 0-5k 5-10k 10-20K 20-50K 50K+ Class A Class B Class C
  14. 14. Page 14 MARKET TRENDS SIGNIFICANT AVAILABILITIES 01. 5015 Spectrum Way - 2 235,000 SF 02. 501 Alliance Ave 226,118 SF NOTABLE LEASE TRANSACTIONS Fresenius Kabi ACC/Airport 25,600 SF The Ian Martin Group Oakville 22,340 SF EMC Corporation ACC 14,233 SF Bioscript Solutions Oakville 9,595 SF NOTABLE SALE TRANSACTIONS 5420/5575/5515 N Service Road & 110 Burloak Drive 472,973 SF $64,750,000 $137 PSF 2010 Winston Park Drive 79,131 SF $19,725,000 $249 PSF 375-385 The West Mall 50,000 SF $10,000,000 $200 PSF 75 International Blvd 89,559 SF $8,500,000 $95 PSF UNDER CONSTRUCTION Completion 1 235 Speers Road - Building 3 & 4 April 2016 2 235 Speers Road - Building 1 & 2 May 2016 3 55-71 Speers Road May 2016 4 255 Longside Drive May 2016 5 2727 Meadowpine Boulevard Jul 2016 04. 2727 Meadowpine Blvd 150,000 SF 03. 2201 Bristol Circle 208,380 SF 05. 6875 Financial Drive 125,786 SF 06. 5015 Spectrum Way - 1 125,000 SF 07. 2455 Meadowpine Blvd 114,760 SF 08. 6715 Airport Road 112,537 SF VacancyRate SquareFeet 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% -400,000 -200,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Deliveries Absorption Vacancy Forecast
  15. 15. Page 15 About Cresa Cresa provides customized solutions exclusively for corporate space users by offering fully integrated services that align real estate needs with business objectives, delivering maximum cost savings and exceeding expectations. Michael Wasyliw Principal, Sales Representative mwasyliw@cresa.com 416.862.2666 FOR FURTHER INFORMATION CONTACT: Hafiz Abdulla Advisor, Finance and Research habdulla@cresa.com 416.862.2666

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