Photo: Carson Ting/Flickr
It was a boom year for office construction with Avison Young Commercial reporting 1.6 million square feet of new office space completed in Downtown Toronto in 2014, the largest amount in a single year since 2009.
New office space wasn’t limited to the core. The GTA’s suburban market also saw construction growth. Despite some high profile cases of big tenants moving closer to the core, more than 768,000 square feet of new space was delivered in 2014. About 2.5 million was under construction by the end of 2014.
As far as filling up all that space goes, the year did see ups and downs with a strong third and fourth quarter making up for the underwhelming first half of the year.
“The past year has really been a tale of two distinctly different halves in terms of absorption. Though leasing velocity was relatively strong heading into and throughout 2014, it didn’t translate into increased occupancy levels until the second half,” said Bill Argeropoulos, Principal & Practice Leader, Research, Canada for Avison Young.
“As a result, positive second-half absorption more than cancelled out the contraction seen in the first half of the year. Going into 2015, some concerns remain about the threat of rising sublease space, due to ongoing space-planning efficiencies among tenants of all sizes, as well as the large development pipeline and looming back-fill vacancy.”
By the fourth quarter, the GTA’s availability rate (space marketed for lease) declined to 11.8 per cent, roughly the same amount as the year before. On the supply side, overall vacancy (physically unoccupied space) increased to 9.6 per cent up 40 basis points from year-end 2013, in large part because of a flurry of new office completions.
For the entire GTA, about 1.1 million square feet is scheduled for completion this year. Only one major downtown office building is scheduled for delivery, the 285,000 square foot Queen Richmond Centre West.
Heading into 2016, 2.3 million square feet of office space is expected to come online in Downtown Toronto market in 2016, and according the the fourth quarter report, “the market is bracing itself for the impending back-fill vacancy resulting from a number of tenant relocations.”
Target’s departure from Canada is also expected to have a ripple effect on the GTA market, and not just because of all the empty stores and warehouses.
The retailer occupied more than 180,000 square feet of office space in the Airport Corporate Centre (ACC) in Toronto West. The ACC has had a high vacancy rate since the recession and Avison Young reports the centre’s class A vacancy rate had been 11.2 per cent in the fourth quarter, an amount that’s expect to rise to about 16 per cent.