The Toronto office market is stagnant, though the corporate rental market remains active, says a new report by Avison Young.
In fact, the sublet market has jumped 30% in the past year.
This is occurring because a new wave of office development—that’s expected to last until 2017—will take off later this year.
“We started the year on a relatively positive note,” says Bill Argeropoulos, vice-president and Director of Research for Avison Young.
“However, the momentum that carried us through the 2008 global financial meltdown is finally subsiding. It appears 2013 may…signal the end of the recent bull run. [But] corporate Canada remains intact.”
According to the report, the vacancy rate of office space in Toronto is climbing. In Q3 2013, the rate stood at 8.8%, up 20 basis points from Q2 and up 70 points over the same period last year.
Overall availability of space has risen to 11.4%. It jumped 90 points between Q2 and Q3 2013, and surged 220 points over last year. In fact, both metrics are at three-year highs.
The softness of the market can be attributed to both the future relocations of spaces and the noticeable uptick in available sublet space.
“There [has been] very little down time between the end of the last development cycle and the start of the current one,” says Argeropoulos. “At the start of the previous cycle in 2006, vacancy hovered in the 6.5% range, while at the start of this one, vacancy was roughly 100 points lower.
“Although there will be more office development in this cycle, the delivery is more spread out,” he continues. “Some developers are already strategizing for the next phase of development, with deliveries in the 2018 and 2019 time frame being planned.”
He adds, “Corporate downsizing, consolidation and relocations are fuelling the rise of sublet space not only in Toronto, but in most major markets across Canada. Toronto’s downtown sublet figure pales in comparison to Downtown Calgary where nearly 50% of the total available space is on the sublet market.”