By Juana Sue-A-Quan, Research Market Director, Greater Toronto Area
When rumors first started flying a couple of years ago about a trophy development being considered by Ivanhoe Cambridge and Hines for the foot of Bay Street in downtown Toronto, some industry analysts thought the 3.0-million-square-foot (msf) twin office towers would spell the end of a boom cycle that began in 2009, pushing the market into a period of sustained high availabilities.
Then, with the recent CIBC announcement that it would make the landmark Bay Park Centre its new head office, leasing up to 1.75 msf, we wondered how adversely the market would be impacted when the bank started moving from several locations throughout Toronto in 2020.
Well, guess what? We’ve crunched the data and listened to our experts, and it’s clear that this future development will deliver relief, not grief. The boom isn’t over yet. Right now, in spite of the addition of 10.6 msf since 2009, the downtown’s overall availability rate is sitting at a 16-year low of 3.3% and the fringe market surrounding the core is at a record low of 2.3%. Quite simply, options for tenants are squeezed to the max, and demand remains strong.
At worst, when the dust from the new Bay Park Centre and CIBC move starts to settle at the end of 2020, we see the availability rate rising to 7.2%. Almost nobody in the industry predicted that the demand would remain so strong for so long.
As we’ve observed many times, the downtown’s growth is being driven by millennials, technology, and changing work and living habits – a confluence of factors that is continuing to transform urban centers around the world. Businesses know that in order to compete and attract the best talent they need to be located close to where people want to live, work, and play. Walkable cities with housing, transit, and amenities close at hand remain high-demand office locations.
Then there’s the tech sector; it’s shifting almost all aspects of our lives and business and seems to be creating jobs as fast as it produces new APPs and solutions. Tech firms have soaked up much of the brick-and-beam space in the fringe market and they’re now moving into the older towers in the financial core. In the past 18 months alone, the tech sector has driven 22% of the downtown’s growth and it’s expected to continue expanding at this astonishing rate.
So, in downtown Toronto, the office story for the next three years will remain one of extremely tight conditions and rising rental rates, with premium class availability scraping the bottom of the barrel at about 3.6%.
The arrival of new developments in 2020 and 2023, along with the impact of tenant relocations, should act as an equalizer that balances the playing field for both landlords and tenants. From this vantage though, the downtown boom rages on.
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.