FALL 2011 | OFFICE
toronto ontario
COLLIERS INTERNATIONAL | MARKET REPORT
Canadian Market Overview The Canadian economy is once again outperforming many of its peers. While this is an enviable position, the question remains: will Canada be able to navigate the global economic headwinds and sidestep either a noticeable slowdown or recession? Commercial real estate has weathered the recent storm and is well positioned for any softening of the economy. Office markets have largely digested the new inventory that was delivered in the past 24 months and are moving towards healthy levels of occupancy. One area that appears somewhat exposed should the global economy enter a protracted downturn is the industrial property class, which in many markets is tied closely to import and export activity. There are mixed signals on both import and export activity levels. Exports have recently reported gains, however the slowing United States economy points to a pullback from our largest customer. The most recent jobs report from the U.S. has further demonstrated the fragility of their economy and will likely hurt U.S. consumer confidence, and hence retail activity. Imports are also in positive territory in the most recent releases, but some caution is warranted as the Canadian Consumer Confidence Index has retreated slightly in July, which may point to a future softening of retail sales and, of greater concern, housing activity. Retail activity is a driver of warehouse and distribution facility demand in many markets, pointing to a reduction in demand for that property type if retail spending is reduced. On a positive note, Canadian businesses appear bullish on future prospects and have started to make capital investments in machinery and equipment, boosting imports in those areas. The outlook appears to call for slow and steady performance in the near term, with a return to moderate growth as external economic variables are stabilized.
Greater Toronto Area Overview
MARKET INDICATORS 2011 Q2
2011 Q3
INVENTORY
NET ABSORPTION
VACANCY RATE
ASKING NET RENT
ADDITIONAL RENT
www.colliers.com/toronto
The last six months were no exception to the strong performance of the Greater Toronto Area (GTA) office market in 2011. Year-to-date demand for office space has exceeded annual levels dating back to 2001 and with over 5.2 million square feet of office space absorbed this year, available space has fallen by almost two percent to pre-recession levels. With 9 percent of GTA office space available—defined as available for lease and may be vacant or occupied—and 5.6 percent physically vacant, the availability rate is now below the ten year average of 10 percent. The strongest performing markets in 2011 thus far include Class A space in Midtown Toronto, Downtown Toronto, and GTA North, which contains Markham, Richmond Hill and Vaughan. The only market where the inventory of Class A availability has increased is in the Central East. Notwithstanding the overall strong performance, a number of office nodes remain challenged with available space exceeding 12 percent, including the Class AAA towers in the Financial
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
GTA Historical Performance & Forecast GTA North Q3 2001 - Q3 2012fCentral East Net Absorption
GTA East
Midtown Downtown Central West Asking Net Rent Vacancy Rate
GTA West Core, Class A space at Woodbine Avenue-Steeles Avenue East, Highway 404-Highway 7, Markham Town Centre, Scarborough Town Centre, Brampton, Burlington, Mississauga City Centre, the older inventory of buildings in Downtown South, Yonge Street-Eglinton Avenue, and the entire Consumers Road, Airport Corporate Centre and Oakville markets. According to the Conference Board of Canada, the GTA will
experience positive, but slower economic growth in the next 12 to 24 months. Considering this, Colliers expects demand for office space to further slow down and delay anticipated office developments out into the future. By Q3 2012, vacancy is projected to decline from 5.6 percent to 5.0 percent, with rental rates increasing marginally from $15.77 per square foot to $16.27 per square foot.
GTA | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Net Absorption
Asking Net Rent
Vacancy Rate
18
Net Absorption (100,000 SF)
20
12 10
6
0 0 (6)
(10)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
Source: Colliers International, September 2011
P. 2
| COLLIERS INTERNATIONAL
2004
2005
2006
2007
2008
2009
2010
2011
2012
(12)
Asking Net Rent ($)/Vacancy Rate (%)
FORECAST
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
Downtown THE MARKET
from 5.7 percent to 4.5 percent, down to less than four million square feet. While this indicated solid demand for office space, the rate of decline actually slowed compared to the period from Q4 2010 through to the beginning of 2011. All building classes experienced a decrease in available space, but the most in-demand were buildings of Class A quality and particularly new development in the submarkets of Downtown South, Financial Core and Downtown East.
FORECAST
Downtown Toronto is a vibrant area with an increasing resident population and retail service base. Colliers expects continued movement of firms from suburban markets to areas on the fringe of the Downtown Core, where new development opportunities exist The commercial market has benefited that can cater to the needs of the “new from consistent growth in downtown generation� of employees. A recent example condominium development as an expanding of this trend includes the announcement number of office workers are choosing to from Coca-Cola regarding their relocation live downtown. Additionally, the increased to a new office development on the site service and popularity of Billy Bishop formerly occupied by the Toronto Sun in Toronto City Airport has contributed to the In contradiction with supply and demand Netdynamics, Absorption Asking Net Rent Vacancy Rate East. weighted average asking net rents Downtown attractiveness of this market for business travelers given the location convenience and have trended downwards as a result of time savings. the successful lease up of higher cost new buildings in the market. The Downtown office TRENDS Since Q2 2011, available office space has market continues to expand to the east, west decreased in the Downtown market from 9.1 and south through conversion of existing percent to 8.2 percent, well below the 10 year stock and new development, demonstrating average of 9.2 percent. Over the same time the continued demand for business proximity period, vacant unoccupied space declined and access to services and transportation. The largest and most prestigious office market in the GTA continues to be home to many global and national companies, primarily in the Finance, Insurance, Real Estate (FIRE) and business services sectors.
Downtown Historical Performance & Forecast Q3 2001 - Q3 2012f
GTA DOWNTOWN | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Asking Net Rent
Vacancy Rate FORECAST
30
Net Absorption (100,000 SF)
8 20 4 10 0
0
(4)
(8)
(10)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Asking Net Rent ($)/Vacancy Rate (%)
Net Absorption
(20)
2012
Source: Colliers International, September 2011
COLLIERS INTERNATIONAL |
P. 3
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
Midtown THE MARKET
Public space improvements such as the Bloor Street Transformation Project between Church Avenue and University Avenue, as well as RioCan’s proposed Yonge-Eglinton Centre revitalization adopting innovative urban design, will enhance location value in this market for both landlords and occupiers seeking an urban work environment. This market houses companies of all major office space utilizing industries: business services, FIRE and public administration.
year end 2010 to its current level of 4.6 percent, well below the 8.1 percent recorded in Q2 2010 . The decline was seen almost exclusively in Class A buildings, as there has been more vacant space marketed in Class B and C buildings compared to Q2 of this year. Older stock in the Bloor Street and Eglinton Avenue markets are showing signs of weakness with available space in Class C buildings in the mid teens.
FORECAST
Slower growth of the GTA economy due to a stalled global recovery may dampen demand for office space in this market. However, there are a limited number of large, contiguous office space options of 20,000 square feet and above available in Midtown and as a result, Colliers expects vacancy and rent levels to remain fairly stable over the next twelve months.
Midtown Historical Performance & Forecast Q3 2001 - Q3 2012f
The overall average asking net rent has increased slightly by less than $0.20 per Netsquare Absorption Net Rent TRENDS foot to $15.75Asking per square foot, and Vacancy rate With vacancy and availability fairly stable for occupied space has expanded by 230,000 more than two years, the Midtown market is square feet over the course of the last now outperforming historic averages. Over two quarters. The combination of lower the past two quarters, the overall availability additional rent charges compared to the rate remained at 7.1 percent of total inventory, Downtown market, while still being able to or 1.3 million square feet. However, Class A offer direct subway access, makes Midtown vacancy has decreased by 2.0 percent from an affordable and convenient office market.
MIDTOWN | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Asking Net Rent
Vacancy Rate FORECAST
20
Net Absorption (100,000 SF)
2 10 0 0
(2)
(4)
(10)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
Source: Colliers International, September 2011
P. 4
| COLLIERS INTERNATIONAL
2004
2005
2006
2007
2008
2009
2010
2011
2012
(20)
Asking Net Rent ($)/Vacancy Rate (%)
Net Absorption
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
GTA Central East THE MARKET
Characterized by office clusters along the Don Valley Parkway and the southern portion of Highway 404, the Central East market serves businesses seeking highway access with proximity to downtown. There is a lack of new office development in this market, particularly in the Don Mills Road-Eglinton Avenue East, Consumers Road and Duncan Mill Road office nodes as rental rates remain well below replacement cost.
levels are expected to marginally increase to levels last observed earlier in 2011 of $12.25 per square foot by Q3 2012.
foot level it has been hovering at for some time. Within Class A product, availability has increased over the past year to 11.4 percent; however this is still well below the 10 year average of 17.3 percent. FORECAST
The Central East market may be gaining some momentum as congestion and higher costs in markets along the northern stretch of Highway 404 force tenants to consider other options. Bentall’s SteelesTechnology TRENDS Campus Phase 3 will add a minimum of Absorptionsquare feet Asking Rentoccupied Vacancy Rate Both overall vacancy at 6.0 percent and theNet 250,000 of Net newly availability rate at 9.7 percent have been at office space to the Central East market once 10 year lows in this market due to strong a lead tenant for this design build opportunity absorption and sustained demand since the has been identified. beginning of 2011. Colliers is projecting stable vacancy rates in
Central East Historical Performance & Forecast Q3 2001 - Q3 2012f
Average asking net rent is at $11.89 per square foot, close to the $12.00 per square
the Central East over the next twelve months, remaining above the 5.5 percent mark. Rent
GTA CENTRAL EAST | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Asking Net Rent
Vacancy Rate
Net Absorption (100,000 SF)
4
FORECAST
2
16
8
0
0
(2) (8) (4) 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Asking Net Rent ($)/Vacancy Rate (%)
Net Absorption
(16)
2012
Source: Colliers International, September 2011
COLLIERS INTERNATIONAL |
P. 5
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
GTA Central North THE MARKET
As one of the GTA’s smaller office markets, the Central North experiences less activity, most of which is centered in the largest submarket of the North Yonge Corridor. The majority of companies in this market are part of the FIRE and public administration sector as they occupy more than 70 percent of office space combined.
than two years. Similar to the downtown market, this was not a function of landlords lowering their rental expectations, but rather a result of more expensive, higher quality space being leased up and therefore no longer included in this equation. FORECAST
With no new supply scheduled and overall Central North Historical Performance & Forecast minimal demand for office space, Colliers anticipates that vacancy and rent levels will TRENDS Q3 2001 - Q3 2012f The availability rate has decreased since remain stable over the next twelve months in Q2 2011 by 760,000 square feet, from 6.8 the Central North market. Net Absorption Asking Net total Rentinventory.Vacancy Rate percent to 6.3 percent of the This was caused by strong leasing in Class A buildings in the North Yonge Corridor which offset an increase in availability of Class B buildings in the Dufferin Street-Finch Avenue West submarket. Vacancy followed suit, decreasing from 4.9 percent to 4.4 percent. Average asking net rent declined significantly to levels that had not been reported for more
GTA CENTRAL NORTH | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Net Absorption
Asking Net Rent
Vacancy Rate
2
16
0
0
(2)
(16)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
Source: Colliers International, September 2011
P. 6
| COLLIERS INTERNATIONAL
2004
2005
2006
2007
2008
2009
2010
2011
2012
Asking Net Rent ($)/Vacancy Rate (%)
Net Absorption (100,000 SF)
FORECAST
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
GTA West THE MARKET
space, compared to pre-recession lows of The GTA West market originated in the 7.7 percent recorded in 2007 and 2008. airport area around growing distribution and The most significant decreases in availability warehousing businesses. Today, office nodes have been observed in the Airport Corporate are located across five different municipalities Centre, Airport East and Highway 427-Bloor and clustered along highway corridors Street West-Islington Avenue submarkets. that provide exposure for tenants. Public Less significant but notable decreases were transportation options are expanding, but seen Meadowvale and Brampton of 200,000 available parking remains a precursor to the and 100,000 square feet respecitively. success of any development. Nevertheless, lower real estate costs, larger floor plates, and A similar trend has been seen in vacancy, easy access to transportation infrastructure which has decreased from 8.4 percent to make this market an attractive option for many 7.5 percent or 3.6 million square feet, due Absorption Asking Net Rent to the absorption of almost 900,000 square companies. As a testament to that, the growth Net of this market in the last 10 years has been feet over the last six months, primarily in the led by new office developments in the Airport Airport Corporate Centre and Meadowvale. Corporate Centre, Meadowvale, the Hurontario Despite decreases in availability and vacancy, Street Corridor, and Burlington submarkets. some of the GTA West submarkets continue to post the highest availability and vacancy TRENDS Since Q2 2011, availability has decreased rates compared to all other GTA submarkets, from 12.2 percent to 11.5 percent or specifically in Airport East, Airport Corporate approximately 5.4 million square feet of office Centre, Oakville and Meadowvale.
The GTA West market’s average asking net rent has trended down marginally from $14.60 to $14.24 per square foot. Aside from the downtown market, the GTA West offers the most sublease options to companies looking for improved space, often at costeffective rates. FORECAST
GTA West Historical Performance & A Forecast minimal amount of planned new should not noticeably influence Q3 2001 - Q3 2012f development the supply of available office space. With recent increased uncertainty in economic confidence, it may take longer than anticipated Vacancy Rate to pre-lease the proposed developments. The GTA West is most exposed to changes in economic conditions, particularly from the United States, due to the concentration of manufacturing, warehousing and distribution facilities. As a result, vacancy rates are likely to remain flat or increase during the next year given a continued period of slow or stagnant growth in the U.S.
GTA WEST | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Net Absorption
Asking Net Rent
Vacancy Rate FORECAST
12
8
4 0 0
(4) 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Asking Net Rent ($)/Vacancy Rate (%)
Net Absorption (100,000 SF)
12
(12)
2012
Source: Colliers International, September 2011
COLLIERS INTERNATIONAL |
P. 7
MARKET REPORT | FALL 2011 | OFFICE | TORONTO
GTA North THE MARKET
The GTA North market has been continuously quoting the lowest availability rate among all of the suburban markets and is the only suburban market to quote an availability rate below the GTA average of 9.0 percent. TRENDS
GTA North’s available office space decreased from 9.3 percent to 8.9 percent, amounting to 1.4 million square feet out of a total office inventory of 15 million square feet. The majority of the decreases occurred in the Highway 404-Highway 407 and Vaughan submarkets, which offset marginal increases in Richmond Hill and Markham Town Centre. Vacancy declined to 980,000 square feet, a marginal change from 6.4 percent to 6.3 percent.
Simultaneously, occupied space grew by almost 300,000 square feet, the same amount as in the GTA East market. On average, the GTA North market has had the highest suburban asking net rent, remaining stable at just below the $15.00 per square foot mark. Notably, on a percentage basis this market quoted one of the highest sublease availability rates at 27.6 percent of the available space. This amounted to approximately 400,000 square feet out of the 3.1 million square feet of available sublease space in the entire GTA.
The GTA East is the smallest of all GTA office markets with about 5.6 million square feet of office space covering the Scarborough, Pickering and Oshawa submarkets. Most of the office space is occupied by companies in public administration, finance and data, publishing, and broadcasting services. TRENDS
Consistent with the trends of declining availability and vacancy in the rest of the GTA, this market has experienced some recent demand for office space and has seen occupied space expand by almost 300,000
• 12,000 employees • 979 million square feet under management • $59.6 billion* total transaction value * USD based on 2010 results
OUR SERVICES
Absorption is expected to remain positive over the next twelve months, although at a much slower pace of less than 50,000 square feet per quarter. As a result, vacancy is forecasted to decline further, causing rental rates to increase slightly.
> Brokerage • Landlord Representation • Tenant Representation > Corporate Solutions > Investment Services > Project Management > Real Estate Management Services
square feet. Since Q2 2011, availability has decreased marginally to 550,000 square feet or 9.7 percent of total market inventory and vacancy has decreased to 5.5 percent or 310,000 square feet. Current available space has become more expensive than it was in Q2 2011 as average asking net rent increased by over $2.50 per square foot to $10.17 per square foot by the end of the third quarter.. FORECAST
Colliers expects the GTA East market vacancy to decline on a small scale but remain above the five percent mark in the coming year, while rental rates should increase marginally.
CONTACT INFORMATION
John Arnoldi
David Wood
Managing Director Toronto +1 416 643 3733 john.arnoldi@colliers.com
Managing Director, Sales Development & Research | Toronto +1 416 643 3419 dave.wood@colliers.com
For information on available properties, additional research reports, and our services please visit www.collierscanada.com/toronto
www.colliers.com/toronto
• $1.5 billion* in revenue
FORECAST
GTA East THE MARKET
512 offices in 61 countries
> Valuation & Advisory Services > Residential Marketing & Sales Services
+1 416 777 2200 This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies. This publication is the copyrighted property of Colliers International and /or its licensor(s). © 2011. All rights reserved. Colliers Macaulay Nicolls (Ontario) Inc., Brokerage.
Accelerating success.