Toronto is seeing such a surge in demand for downtown office space within walking distance of all those bright young workers now living in highrise condo towers that office vacancy rates continue to decline and rents rise.
That’s a trend expected to continue through the rest of 2012, according to a report released Tuesday by commercial leasing brokerage Colliers International.
While previous periods of high demand for downtown office space have largely been driven by strong economic and business performance, a “demographic shift” is now also contributing to a tightening in the commercial sector, says John Arnoldi, managing director of the Toronto Region for Colliers.
The average office vacancy rate across the GTA declined to 5.1 per cent in the first quarter of 2012, down from 5.6 per cent in the fall of 2011, according to Collier’s semi-annual report.
Average rents hit $16.12 per square foot this spring, up from $15.77 per square foot in the third quarter of 2011.
By the first quarter of 2013, net rental rates are expected to hit $16.35 per square foot and the vacancy rate could drop to 4.9 per cent, Colliers predicts.
“Single digit vacancy rates is a very healthy market,” says Arnoldi. “If this was the United States, they’d be building at this point.”
In fact, new office developments are already planned, largely south of Union Station on the Railway Lands. And there are about a dozen sites downtown where offices could easily be built, says Arnoldi, stressing that the commercial sector isn’t facing the same challenges yet finding sites to develop as are residential builders because of Toronto’s unprecedented condo boom.
It is actually that frantic pace of condo construction that is causing demand for office space to soar, especially in “hot zones” now undergoing revitalization, such as the King St. area just east of the downtown where Coca-Cola is moving its office headquarters and the south financial core along York St. near the waterfront, Arnoldi stressed.
“The urbanization and revitalization of the downtown core with a mix of commercial and residential projects is drawing both today’s and tomorrow’s workforce into the area.
“Employers are taking notice and opting to anchor their operations close to their most valuable assets, where their employees live.”
Some 900,000 square feet of office space was absorbed across the GTA in the first quarter. Much of the office demand in the downtown core related to financial sector jobs, says Arnoldi, although a growing number of diverse companies, such as Google and Coca-Cola, are also looking to make the core area home.
Ilan Joseph is a Real Estate Broker with Sutton Group and is co-founder of a 10-person award-winning Toronto real estate team. You can find him on Twitter and Google+. For over 10 years, Ilan has provided more than 1300 buyers and sellers valued advice and service, enabling them to reach their real estate goals. He’s kind of like the Bruce Willis of real estate.