GTA office market to tighten this year say analysts

Despite a significant amount of new supply over the last year, the Greater Toronto Area commercial office market continues to recover from the recession and vacancy rates are expected to tighten by the end of the year, says a report.

“Toronto’s skyline has changed dramatically. We went from a period where we had no building of office towers in 14 years to three major projects that all came on stream during the recession,” said John Arnoldi, managing director with Colliers International in Toronto.

The office market is seen as something of a leading indicator for the Canadian economy. Businesses are figuring out their space requirements for the future and it seems they have been largely optimistic with demand for space showing a rebound.

The current first quarter vacancy rate of 6.4 per cent for office towers is expected to drop to 6.1 per cent by the end of the year according to Colliers in a report released Tuesday. Asking net rents are projected to increase from $16.08 in the first quarter to $16.31.

This is all the more remarkable, given that there have been three new substantial office towers built in the downtown core, representing almost 3 million square feet of space. There is also another 650,000 square foot office project at 18 York St., still to be built. Colliers is also forecasting that at least two new downtown office developments may be announced this year.

The new supply has created more alternatives in the market, with some tenants moving out of existing buildings. As some tenants have moved, landlords are busy renovating existing stock.

According to the Conference Board of Canada, 2011 should see a further increase in confidence in the local market due to still favourable interest rates, a growth in gross domestic product and increasing employment. That bodes well for the GTA market, which explains why some developers are thinking of building commercial space.

“They are looking at four or five years down the road when the economy gets back up to speed,” said Arnoldi.