TORONTO, ON – July, 2015 – Build it and they will come is more than a cliché for new developments easily accessed by all modes of transportation, including foot and bike. For that reason, it’s no surprise that Downtown South, on the doorsteps of the expanded Union Station, is now Toronto’s fastest growing office submarket, with space leased almost as fast as it comes to market. Class A vacancy plunged from 5.8% to 1.7% in the second quarter, according to Cushman & Wakefield’s Q3 2015 downtown office statistics released today, while absorption across the entire downtown was an impressive 300,000 sq. ft.
This performance highlights the continuing strength of downtown Toronto, with a special focus on the success of the Downtown South, a submarket that barely existed before 2009, and now has 5 million sq. ft. of Class A office inventory, with more development to come. The last quarter of 2014 saw 1.6 million sq. ft. added with the opening of two office towers, RBC Waterpark Place and Bremner Tower, which are now about 99.5% and 91.0% leased, respectively.
Even before these two towers opened, Downtown South’s vacancy was at a record low 0.6% during the second and third quarters of 2014. The new buildings offered short-lived relief, with vacancy once again scrapping the bottom of the barrel. Next up for this vibrant market is 1 York, which will arrive in the third quarter of 2016, and is already substantially pre-leased.
“All of us in the industry have been blown away by the runaway success of the new developments,” said Michael Caplice, Senior Managing Director, Market Leader, Greater Toronto Area, Cushman & Wakefield Canada. “The key is accessibility and proximity to public transit hubs, especially Union Station. It’s all about the powerful urbanization trend and how our downtown has become a 24/7 live-work market that continues to attract residents and businesses.”
Added Caplice: “There’s no question that the success of Downtown South will lead to more development. Already, Ivanhoé Cambridge’s 1.5 million sq. ft. office tower at 81 Bay Street is in the works and this project, which includes two landmark towers tied into Union Station, will be another massive game changer for the office market and city.”
Drilling deeper, Cushman & Wakefield stats reveal that the success of the new builds has been at the expense of the older premium towers in the financial core, but so far not to the level some feared. Over the second quarter, vacancy rose from 4.3% to 7.4% in the older Class AAA inventory.
By 2017, when the current cycle is completed, bringing in excess of 10 million sq. ft. to the downtown market since 2009, Cushman & Wakefield projects that downtown premium vacancy will reach 9.6%. The lion’s share will be in older properties as tenants continue to gravitate to transit-oriented newer buildings that are designed to support densified workplaces and offer an array of amenities that appeal to workers today. This shift is already giving rise to a bifurcated market, with spot pricing emerging among some older competitive towers.
Also, in the Downtown North Market, 661 University (Mars Centre Phase 11), a 780,000 sq. ft. building that opened in Q4 2013, has not fared as well as Downtown South new builds. The building, which remains 50% vacant, has driven the market’s overall office vacancy rate from 6.6% in Q3 2013 to 8.4% in Q2 2015. This underscores the greater appeal of downtown markets that offer superior access to public transit and all modes of transportation.
As Caplice explained, “even though there are market shifts taking place, and we’re beginning to see a divide between old and new properties, overall premium-class buildings are still experiencing strong expansionary growth – a sign that new business continues moving in and existing companies are expanding. This has kept the downtown vacancy relatively low in spite of the tremendous amount of new inventory.”
Most Active Development Markets in North America
(CBD under construction as of Q1 2015)
New Building Success
A look at impact of new supply in Toronto’s Downtown South and comparing the performance of Downtown South and the Financial Core.
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