Toronto office market at 'tipping point'

The Toronto office market is at a "tipping point," with vacancy rates falling and rents finally starting to edge up, says Paul Morse, senior vice-president of leasing for Royal LePage Commercial Inc.

"There has been tremendous activity. Things are starting to swing," Mr. Morse said. "That suggests we are at a tipping point."

That swing could also bring new office construction in the downtown core in the next six months, he said.
New figures released yesterday by Royal LePage show vacancy rates in the downtown core hit 8.2 per cent in the second quarter, down from 8.9 per cent in the first three months of the year.

But Mr. Morse pointed out that vacant space in the city's prime towers is much less, at 6.1 per cent.
As well, the amount of occupied space in the city has increased as much in the first two quarters of this year as it did in all of 2004. About 145.8 million square feet of office space is now leased in the Greater Toronto Area, a level not seen since the technology boom of 2000, when 143.7 million square feet of space was filled.

"That's a healthy sign," Mr. Morse said.
Still, he pointed out that, even with improving conditions, landlords are cautious about raising rents and especially about beginning new projects.

Talk of a new office tower for Toronto has been circling in real estate circles since the beginning of this year as three firms jockey for position and for the lead tenant they need to get a project rolling.

Two major downtown landlords, Brookfield Properties Corp. and Cadillac Fairview Corp., have been working on plans for major office projects for some time. Cadillac Fairview has a site on Simcoe Street and Brookfield is working on restarting its Bay-Adelaide Centre. Family-owned Toronto developer Menkes Developments Inc. also has plans for a site near the Air Canada Centre.

Mr. Morse said there is a real need to revitalize the city's stock of top-quality office space in order to compete with other cities in North America.

Landlords may also be feeling some pressure to offer existing tenants the option of modern space in order to stop them from moving to a competitor with a new project on the drawing board.

While rents are moving up, Mr. Morse said they are still not at levels that would make new construction pay off. That could soon change, he said, and a lead tenant for a new project could be brought onside early with a sweetheart deal at a lower rate.

Filling space
Commercial vacancy rates in the GTA are falling, and talk of new office construction is on the rise.

161.2 million square feet of commercial space in the GTA

9.5% commercial vacancy rate in the second quarter of 2005

9.9% commercial vacancy rate in the first quarter of 2005

10.7% commercial vacancy rate in the fourth quarter of 2004