Why 2013 May Be an Ugly Year

Avison Young reports declining occupancy levels and rising vacancy rates in Q3, as we brace ourselves for a new wave of office development over the next several years. However, market correction aside, research guru Bill Argeropoulos says the development community is looking at the future with confidence. Overall vacancy in the GTA closed the third quarter at 8.8%--up 20 bps from the previous quarter and 70 bps from the same quarter in 2012. More telling perhaps is the increase in availability--at 11.4% for the quarter, a jump of 90 bps from the last quarter, and up 220 bps from the same quarter one year ago.

Here's Oxford's 100 Adelaide St W site, one of the new developments to open in 2017. "The momentum that carried us through the global meltdown in 2008 is subsiding," Bill tells us. "It looks like 2013 may turn out to be the least impressive performance in some time." Despite Downtown Toronto's tight vacancy rate of 5.6%, Bill points to the higher availability rate (8.9%, up from 7.6% in Q2 '13 and 6.6% in Q3 '12) as another indicator of a softening market. Companies are downsizing, consolidating or relocating, or have plans to (which is also going on in major markets across the country). Still, says Bill, there's a silver lining. "Corporate Canada remains intact with ample cash on hand to expand their operations. That's what the development community is focusing on."

Here's Royal Bank Plaza, a Triple-A office tower at Bay and Front. Another noteworthy trend: the rise in the sub-leasing market. Downtown available sublet space has risen 525k SF in the past year, with the vast majority (422k SF) in Class-A buildings in the financial core. That's 20% of all available space, up from 16% a year ago. Other highlights--Bloor ranks among the tightest markets in the GTA with a vacancy rate of 4.8%; and while vacancy rates in the suburban market held steady (11.9%), availability jumped 40 bps to 14.1%. It's important for corporate occupiers to understand what their real options are, Bill adds. "Hidden opportunities may present themselves as we move through this cycle. (Retain a Ouija board and good counsel.)