Offices looking to downsize downtown
Shift from suburbs to core could boost vacancy rates as new spaces come on stream
SUSAN PIGG
BUSINESS REPORTER Location is trumping space as more businesses look to move to the downtown core and downsize their offices at the same time, says a new report from leasing brokerage Colliers International.
The downtown commercial vacancy rate dropped slightly to a record low of 3.8 per cent in the first quarter of 2014 from 4.1 per cent a year earlier, it says. But vacancies have started creeping up in suburban markets as more “non-traditional tenants” — beyond the usual financial services and legal firms — migrate downtown.
But they are largely looking for smaller footprints and foregoing the big corner offices for more energy efficient, open, collaborative work spaces that don’t eat up as much costly square footage per employee.
That downsizing, which is a part of a major global workplace trend that’s taken hold the last few years, may actually push up the unusually low downtown vacancy rate come 2016 or 2017, says Colliers.
That’s when some 5.5 million square feet of new office space, much of it now under construction in the new South Core area between Lake Ontario and Union Station, comes on stream, notes the “First Quarter 2014 GTA Office Market Report.”
Millions more square feet of office space is on the books but, if it goes ahead, wouldn’t be ready until at least 2018.
“However, if current trends continue, the new supply will have more of an impact in the suburbs than downtown as companies continue to break the mould and migrate from the suburbs to the core,” says the report.
The landmark towers in the traditional Financial Core are also likely to feel the impact off all the new, well-placed competition, says Colliers. There has been a rise in avail- able space in AAA and B class buildings since the last quarter “confirming tenants’ desire to upgrade and relocate to the new buildings in the pipeline.” The office boom has gone hand-inhand with an explosion of urban retail space, notes the report, increasingly in mixed-use office or condo towers that have enabled thousands more people to both work and live downtown. Abig part of the move downtown by employers is simply to be close to the massive pool of young, educated workers who have no desire to commute from homes in the 905. “It’s not like the suburbs are emptying out and moving back downtown, but you will see some deals announced in the near future of tenants who are moving back to the core,” said John Arnoldi, executive managing director for Colliers Toronto. “The migration to the suburbs has seemingly stopped and there is a bit of reverse migration now.” Arnoldi also stressed that some bump up in vacancy rates isn’t necessarily a bad thing, given how unusually low the downtown rate stands now at under 4 per cent: “Having a little elbow room in the market is a positive. If Boston or New York or Houston get vacancy rates below 12 per cent, they are building like crazy.” Colliers also reports that the GTA industrial market is poised for growth through 2014 and beyond, in light of the weak Canadian dollar and strengthening U.S. economy. The Conference Board of Canada anticipates that manufacturing output will increase by almost 3 per cent in 2014 and 3.2 per cent in 2015, says Colliers’ Industrial Market Report for Q1 2014, although it cautions that some of that growth could be dampened by increasing electricity rates.