In its Real Estate Market Study published today, Newmark Knight Frank Devencore reported that the corporate real estate market in the Greater Toronto Area (“GTA”) is returning to a more balanced state. Moreover, with approximately 4.1 million square feet of new office inventory coming to the market in the near future and the increased competition within the landlord community, the GTA is likely to become even more tenant-friendly in the months ahead.
“As the amount of available space steadily mounts, landlords are becoming more motivated to secure quality tenants for the long term,” said Allan Schaffer, President / Broker of Record of Devencore Realties Corporation Canada Limited, Brokerage. “Given these circumstances, over the short term tenants will have some of the best opportunities in many years to negotiate advantageous leasing arrangements. Certainly the arrival of this new space will create momentum in the city’s corporate real estate market and encourage tenants who have been cautious over the past year to reconsider their options.”
In the first six months of 2009, the combined Class “A” and Class “B” office vacancy rate in Toronto’s Downtown District rose from 4.5% to 6.3%. This represents a negative absorption (an increase in the supply of office space) of slightly under 1.1 million square feet. Over the same period, however, just over 1.2 million square feet of new inventory was introduced to the market. In other words, new inventory-rather than wholesale corporate downsizings-has been the most significant driver of escalating vacancy rates in the past six months.
“In those buildings vacated by tenants who have leased space in the new office developments, landlords will likely be particularly aggressive and we may see certain creative leasing inducements reintroduced to the market,” Schaffer added. “Additionally, there is a willingness to restructure existing leases and to negotiate early blend and extends. With the Conference Board of Canada predicting a resumption of economic growth towards the end of 2010, some of this leverage may begin to dissipate.”
In Canada’s other major urban centres vacancy rates have also risen significantly. Some cities have been more dramatically and immediately impacted than others; the sharpest increases in office space availability occurred in Vancouver and Calgary, mirroring the precipitous weakening of demand in the resource sectors. Until the recession hit, the office market in most of the country was weighted in favour of landlords; however, the jump in vacancy rates should loosen up the markets in most major cities and offer more options to those tenants who have been seeking new leasing arrangements.
Read the press release, here.