More than 2.5 million square feet of class-A and -B space have been added to the downtown Toronto office market over the past 12 months and the vacancy rate rose to 6.8 per cent in the first half of the year.
“With the new space coming on to the market, there’s no question that the vacancy rate will be up to the 10 to 12 per cent range,” said Allan Schaffer, president and broker of record for Devencore Realties Corporation Canada Limited, Brokerage, who contributed to a new Newmark Knight Frank Devencore Toronto-focused National Office Market Report.
“Space will sit empty longer, but I don’t see any situation like we had in the early ’90s when it was a bloodbath. Most of the developers today have very deep pockets and they’ll be aggressive in trying to fill the space. As long as we don’t get into any kind of major recession, I don’t think it will affect the market, except landlords will have to become more aggressive and creative in doing deals.”
Just under 3.4 million square feet of the 46 million square feet of office space in 115 class-A buildings in Toronto’s downtown area is vacant, according to the report. Approximately 990,000 of the 18 million square feet of space in 142 class-B buildings is available.
Available class-A spaces
Tenant opportunities in older downtown class-A buildings include:
* less than 300,000 square feet in the 3.8-million-square-foot Toronto-Dominion Centre complex;
* more than 270,000 square feet which will be available in the Ernst & Young Tower in 2017 when EY relocates to its new premises;
* more than 259,000 square feet of space available for lease or sublet in First Canadian Place;
* large pockets of space in Brookfield Place at 161 and 181 Bay St. where, once Deloitte and Marsh & McLennan Companies vacate their current premises, more than 515,000 square feet will be available;
* and three 12,000-square-foot blocks available for sublease in the Royal Bank North Tower, where an additional 182,000 square feet will become available when Oxford Properties relocates to 100 Adelaide.
Office development outside traditional downtown core
Office development is expanding to the east and west of Toronto’s traditional downtown core, with much of the demand being driven by the financial services, high-tech and entertainment sectors. Rents are lower than in the core in these increasingly popular areas, though the gap is narrowing.
“Over the last year the net rental rates in the core buildings, especially the older ones which have lost tenants to the new buildings going up, have come down considerably,” said Schaffer.
“Some tenants that we’ve been working with over the past 24 months originally started looking at brick and beam, but then got better deals in some of the older buildings that have lost tenants or are going to lose tenants to some of the new buildings.”
Tenants are attracted to new LEED Gold and Platinum-certified buildings for environmental reasons, and other amenities including outdoor terraces, showers, bicycle storage space, increased natural light via bigger windows, state-of-the-art building automation systems, more efficient floor plates and raised flooring systems are also part of the draw.
New downtown office developments
According to the report, some of the major developments underway or on the drawing board in downtown Toronto include:
* Bay-Adelaide Centre – East Tower in the financial core, where Deloitte LLP is the anchor tenant, the law firm Borden Ladner Gervais has taken 200,000 square feet, and Bell Canada has reportedly taken the top two floors, while about 346,000 square feet remains available;
* the 892,000-square-foot and essentially fully leased Richmond-Adelaide Centre Phase III at 100 Adelaide St. W., where Ernst & Young, TMX Group, Oxford and OMERS are the principal tenants;
* the 889,000-square-foot RBC WaterPark Place at 88 Queens Quay W., where RBC Royal Bank and Cisco Systems are the major tenants and approximately 100,000 square feet remains available;
* the 800,000-square-foot Sun Life Financial Tower, which has Sun Life Financial and HOOPP as its key tenants and is seeking a large retail tenant for the building’s 2016 completion;
* the 672,000-square-foot Bremner Tower, the second phase of the 1.4-million-square-foot Southcore Financial Centre now being delivered with Marsh & McLennan, CIBC and Amazon among the tenants;
* the 500,000-square-foot The Globe and Mail Centre at 351 King St. E. that’s being developed for fall 2016 completion by First Gulf, and where The Globe and Mail will be the major tenant along with LoyaltyOne and Yellow Pages;
* the 284,500-square-foot Queen Richmond Centre West being developed by Allied Properties REIT at 134 Peter St., where the major tenants will be Sapient, Entertainment One, Arc Productions and Diageo;
* a two-tower, 2.7-million-square-foot LEED Platinum development led by Ivanhoé Cambridge at 45-141 Bay St. that’s being designed as an integrated office complex with a new GO Transit bus terminal and a one-acre elevated park above the rail corridor;
* the 600,000-square-foot mixed-use Daniels Waterfront – City of the Arts at 130 Queens Quay E. being developed by The Daniels Corporation that will have 322,500 square feet of office space;
* and a First Gulf project slated for 25 Ontario St. which will comprise 500,000 square feet and have 23,000-square-foot floor plates.