As the downtown growth cycle wraps up its ninth year, the demand for office space continues to outstrip supply. Businesses and people keep moving in, and all indicators are positive for this year and next
By Juana Sue-A-Quan, Research Market Director, Greater Toronto Area
How hot is Downtown Toronto’s office market? When we crunched the third-quarter stats, we were amazed yet again at the sustained power and strength of this cycle. Vacancy hit a record low of 3.0% amidst a nonstop development boom that started back in 2009 — and demand shows no signs of easing. Is it any wonder that Toronto is considered a contender for Amazon’s HQ2 (not to mention so many other big name tech firms)? Nonstop construction may be a drag but this town has it all going on – right now.
Let’s take a look at what’s going on. As of the third quarter, only 3.0% of the downtown’s 75 million square feet remained available. Drill down to the cool west submarket – home to a fast-growing number of tech firms – and you’ll find availability at 1.8% (aka: almost non-existent).
We’ve been tracking the GTA market for many years and can honestly say we’ve never seen anything like it. Growth cycles never last this long. But these are strange and disruptive times. Toronto, like other urban cities, is being transformed in unimagined ways by the crazy forces of technology, with a powerful cohort of millennials leading the way. And watch out: Millennials are now moving into their prime earning years, which will only fuel more dramatic change, including e-commerce, but that’s for another blog!
Downtown office demand is so strong that it’s gobbling up space before it hits the market in new and older buildings. While other cities in North America are starting to worry about overbuilding in a maturing growth cycle, our downtown is facing the opposite problem: demand is far outpacing supply. That’s never a good thing either. In what’s become a landlords’ market, options for tenants are becoming increasingly squeezed – and more expensive.
That’s where our seasoned pros come in – they know about availabilities before they’re made public, leverage close landlord relationships to negotiate and structure the best deals possible, and are masters at coming up with creative solutions to meet our clients’ current and future needs.
Firms on the street today depend on such inside knowledge, especially since the downtown won’t see significant relief until 2021. That’s when CIBC Square’s 1.4-msf office tower opens, and it’s already 76% preleased! Hopefully, displaced space created by shuffling tenants will help to ease the situation.
Not surprisingly, there are a number of exciting office projects on the drafting table. Next to Washington, DC, Downtown Toronto is the hottest development market in North America, with by far the lowest availability rate. Between 2009 and 2023, some 16.4 msf of inventory will have been added to our skyline, making this build cycle the second largest in the city’s history. Exciting times, indeed.
Juana Sue-A-Quan is Research Market Director for the Greater Toronto Area. In this role, Juana leads the research teams and initiatives across all three GTA offices, delivering industry leading insights and thought leadership to our leasing professionals and clients.