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Greater Toronto AreaDecember-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Net Absorption Net Absorption Asking Net Asking Gross New Supply Under
Office Concentration Class Surveyed Inventory 1 Space Rate 2 Space Availability 3 Rate 4 Rate Q4 2009 12 Months Rental Rates 5 Rental Rates Q4 2009 Construction
SURVEY RESULTS PRESENTED IN THIS REPORT HAVE BEEN CONDENSED FOR EASY REFERENCE.
NOTES:1 Office Inventory:
2 Vacancy Rate:
3 Sublet Availability: This ratio represents the share of available sublease space of the total available space.
4 Availability Rate:
5 Average Rental Rates: Average rental rates are calculated off available spaces which also quote rental figures.
The Vacancy Rate is the amount of vacant space divided by the existing building inventory base. Vacant space is available and physically unoccupied, and it includes both head lease and sublease space.
The Availability Rate is the amount of available space divided by the building inventory base. Available space is space that is available for lease and may or may not be vacant.
For the purpose of this report, buildings with less than 10,000 sf of office space and buildings owned and occupied by the government have not been included in the office inventory.
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it. All
properties subject to change or withdrawal without notice.
Downtown
December-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Net Absorption Net Absorption Asking Net Asking Gross New Supply Under
Concentration Class Surveyed Inventory Space Rate Space Availability Rate Rate Q4 2009 12 Months Rental Rates Rental Rates Q4 2009 Construction
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it. All
properties subject to change or withdrawal without notice.
Midtown
December-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Net Absorption Net Absorption Asking Net Asking Gross New Supply Under
Concentration Class Surveyed Inventory Space Rate Space Availability Rate Rate Q4 2009 12 Months Rental Rates Rental Rates Q4 2009 Construction
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it.
All properties subject to change or withdrawal without notice.
GTA NorthDecember-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Net Absorption Net Absorption Asking Net Asking Gross New Supply Under
Concentration Class Surveyed Inventory Space Rate Space Availability Rate Rate Q4 2009 12 Months Rental Rates Rental Rates Q4 2009 Construction
GTA NORTH A 59 7,888,467 452,526 5.7% 959,872 33.9% 12.2% 8.9% 53,566 45,622 $19.20 $37.24
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it. All
properties subject to change or withdrawal without notice.
GTA East
December-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Net Absorption Net Absorption Asking Net Asking Gross New Supply Under
Concentration Class Surveyed Inventory Space Rate Space Availability Rate Rate Q4 2009 12 Months Rental Rates Rental Rates Q4 2009 Construction
GTA EAST A 112 14,778,342 1,389,098 9.4% 1,890,240 17% 13% 12% (134,755) (154,916) $14.15 $26.25
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it. All
properties subject to change or withdrawal without notice.
GTA West
December-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Absorption Net Absorption Asking Net Asking Gross New Supply Under
Concentration Class Surveyed Inventory Space Rate Space Availability Rate Rate Q4 2009 12 Months Rental Rates Rental Rates Q4 2009 Construction
GTA WEST A 220 22,354,946 1,626,585 7.3% 2,435,495 28% 11% 9% 81,816 529,742 $15.47 $27.29
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it.
All properties subject to change or withdrawal without notice.
GTA West
December-09 Q4 2009 Q4 2008 Avg. Avg. Net Currently
Buildings Office Vacant Vacancy Available Sublet Availability Availability Absorption Net Absorption Asking Net Asking Gross New Supply Under
Concentration Class Surveyed Inventory Space Rate Space Availability Rate Rate Q4 2009 12 Months Rental Rates Rental Rates Q4 2009 Construction
Information contained herein has been obtained from the owners or from other sources deemed reliable. We have no reason to doubt its accuracy but regret we cannot guarantee it.
All properties subject to change or withdrawal without notice.
Toronto OfficeFourth Quarter 2009www.cbre.ca/research
CB RICHARD ELLIS
� Over 4.0 million SF of new supply was completed in 2009; a new single year record for the GTA.
� A statistical anomaly occurred in the third and fourth quarters in terms of absorption, however, over the next two to four quarters this important demand benchmark should normalize.
� The Suburban market has given more space back in the last four quarters than what was absorbed throughout 2008.
Hot Topics
Quick Stats
1,225,623
692,884
$17.35
9.4%
Current Yr.
Completions (SF)
Net Absorption (SF)
Net Rent (psf)
Vacancy
Qtr.
Change from last
*The arrows are trend indicators over the specified time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a specified period.)
There were two significant turning points for the
Greater Toronto Area (GTA) office market in
the fourth quarter of 2009: the end of the
Canadian recession; and the delivery of
another major office tower in the Downtown
market, meaning that the bulk of the new office
developments in the GTA have been delivered
to market. Statistics Canada confirmed in the
fourth quarter that Canada came out of the
recession in September with a 0.4% increase in
Gross Domestic Product (GDP), followed with a
gain of 0.2% in October. While this growth is
encouraging, the economy is still 3.2% smaller
than in the same period of 2008.
With the delivery of Menkes� Telus Tower at 25
York Street, the Downtown Toronto market has
now received 3.1 million SF of the 4.6 million
SF which has been under construction. The
remaining 1.5 million SF will be delivered
through Maple Leaf Square (200,000 SF), the
TEDCO Corus Building (450,000 SF), 18 York
Street (641,000 SF) and 111 Richmond Street
West (225,000 SF). With the majority of new
construction (69.0%) successfully delivered to
market and a further 657,000 SF expected in
the first quarter of 2010, it seems that this
recession will not mirror the 1991-1992 period
that was hallmarked by the failure of the
original Bay-Adelaide Centre.
The statistical anomaly in absorption that was
reported in the third quarter continues to occur
and has resulted in 692,884 SF of positive
quarterly net absorption for the GTA. The
anomaly is rooted in the methodology used to
calculate absorption* which includes pre-leased
new construction completions as positive
absorption despite the fact that tenants have
* CB Richard Ellis measures absorption by subtracting the change in inventory quarter-over-quarter (q/q) from the change in occupied space (q/q).
The total GTA inventory rose by 1.0% this quarter, the majority of which was delivered through the completion of the Menkes Telus Tower at 25 York Street (780,000 SF) in the Downtown South market. Of the major new builds in the Downtown market, only 15 York Street (207,000 SF), 18 York Street (641,000 SF), and the TEDCO Corus Building (450,000 SF) have yet to be completed. The remaining space was delivered in the GTA West with five new completions: Meadowvale saw the most activity with three completions totaling 275,000 SF; Mississauga South saw the completion of 100,000 SF project at 2699 Speakman Drive; and a 70,720 SF project was completed in the Highway 10 � Highway 401 Corridor at 75 Courtneypark Drive.
The Toronto economy continues to struggle, even in light of recent good news for the Ontario economy. The unemployment rate in Toronto settled at 9.7% in the fourth quarter, up from 9.2% in the previous quarter, while the rate in Ontario rose to 9.3% from 9.2% last quarter. Much of the provincial job losses are thought to be in manufacturing and construction which would have been the primary beneficiaries of stimulus spending and bailouts. The fourth quarter also marked the third consecutive quarter of GDP growth for Toronto and a return to levels not seen since the fourth quarter of 2008.
The overall GTA vacancy rate climbed another 30 bps in the fourth quarter to 9.4%. This is a full 260 bps higher and 4.1 million SF more vacant space than in the fourth quarter of 2008. Without a major unforeseen event, the vacancy rate will almost certainly enter into double-digit territory in the first quarter of 2010, a level not seen since 2005. Vacancy levels actually bucked the trend and dropped in all GTA North markets, and some GTA West markets. As a result, the Suburban markets look virtually flat in terms of vacancy rate growth, while the Central markets saw a 50 bps increase in the overall rate to 7.3%. This increase is principally due to the continued delivery of new product to the Downtown market.
The fourth quarter of 2009 saw net rental rates begin to retreat in line with the rising vacancy rate in some markets. Most significantly, it appears as though the new supply and 1.5 million SF of sublease space in the Central market has finally caught up with rental rates as they fell 2.3%, or $0.53 psf, to $22.44 psf. Nowhere was this more pronounced than in the Downtown Class A category where a $2.40 psfdrop was recorded, or almost 8.0%, to $27.63 psf, virtually the same level as this time last year. The Suburban markets edged up slightly by $0.10 psf, but rates are expected to decrease in 2010.
The Central market posted 324,062 SF of positive net absorption in the fourth quarter, but if you take out the 669,278 SF of positive absorption in the Downtown South Class A (Telus Tower), the story would be much the same as the third quarter with very little leasing activity and a large amount of negative absorption. The Suburbanmarket recorded positive 368,822 SF of absorption in the fourth quarter, which breaks the streak of three consecutive quarters of negative net absorption. Absorption for the GTA as a whole was flat with only 131,756 SF of positive net absorption for the year.
Similar to the Greater Core, the Financial Core changed course after the third quarter. Net rental rates fell $1.08 psf to $28.01 psf, the lowest level since the end of 2007. Similarly, after positive absorption in the third quarter due to the opening of the Bay-Adelaide Centre, the absorption number for the fourth quarter came in at negative 208,161 SF, in line with the rest of the City and expectations.
The vacancy rate continued to climb, up 80 bps to 7.8%. This number is expected to climb further in the coming quarters as the market struggles with slow growth.
Significant Financial Core transactions this quarter include:
�Beard Winter LLP renewed their lease of 40,000 SF at 130 Adelaide Street West
�Deloitte & Touche renewed their lease of 42,000 SF at 121 King Street West
�MacQuarrie Bank Ltd. leased 34,000 SF at 181 Bay Street
The Midtown market posted 100,411 SF of negative absorption in the fourth quarter. This came on the heels of the first quarter of positive absorption for the Midtown market since the beginning of 2008. All three submarkets experienced negative absorption, although as a percentage of total inventory the St. Clair/Yonge market lost the most with negative 24,429 SF. The vacancy rate rose from 7.7% in the third quarter to 8.3%, the same level as in the second quarter of 2009.
Despite the negative absorption, the overall quoted asking net rental rate rose for the first time in 2009, ending the quarter up $0.09 psf at $16.62 psf.
Significant Midtown market transactions this quarter include:
�Systemware Innovation Corp. leased 21,278 SF at 2300 Yonge Street
�Ontario Education Collaborative Marketplace leased 12,000 SF at 90 Eglinton Avenue West
�DIGI Group Inc. leased 6,171 SF at 1200 Bay Street
Notwithstanding the completion of the Telus Tower, it was another poor quarter for the Central market. If you strip out the 669,278 SF of positive absorption that was contributed by the Telus Tower, the result would be significant negative absorption. The new buildings masked the weak fundamentals that currently exist in the Central market. The vacancy rate climbed 50 bps to 7.3%, which is the highest rate since the fourth quarter of 2006. Sublet availabilities continued to increase as an additional 117,058 SF come onto the market in the third quarter.
The overall quoted asking net rental rate closed the quarter at $22.44 psf, down $0.53 psf from the third quarter. This remains close to the historical high for the Central market thanks to large block availabilities in Toronto�s new marquee towers.
Significant Central market transactions this quarter include:
�Baker & McKenzie LLP renewed 38,000 SF at 181 Bay Street
�Department of Justice subleased 25,450 SF at 130 King Street West
�Allianz Group leased 30,000 SF at 130 Adelaide Street West
The statistical jumps that occurred in the Greater Core as a result of the opening of the RBC Centre last quarter were erased in the fourth quarter. Absorption had surged by 839,132 SF in the third quarter, but fell back to negative 56,238 SF in the fourth quarter. Net rental rates, which rose by an astonishing $3.87 psfin the third quarter, dropped $3.24 psf in the fourth quarter to end at $21.93 psf. Vacancy continued to rise, but at a more moderate pace of 30 bps to 7.0%. The market will take a few quarters to fully absorb the space in the new RBC Centre, which still has 320,000 SF available.
The Class B market fared the best this quarter, as both vacancy (6.5%) and net rental rates ($17.24 psf) dropped, while absorption remained positive. This resiliency is most likely due to economic considerations.
Significant Greater Core transactions this quarter include:
�The Insurance Institute of Canada leased 22,361 SF at 18 King Street East
�Genest Murray LLP leased 7,500 SF at 200 King Street West
After three difficult quarters, the West market showed some life in the fourth quarter. Almost 450,000 SF of new space was delivered this quarter, which resulted in 439,385 SF of positive absorption. Most of the absorption was located in the Meadowvale submarket where three new buildings totaling 275,000 SF were completed. Only Brampton and the 427 Corridor recorded negative absorption. As a result of this, the overall vacancy rate dropped 20 bps to 11.6%, the first decline in 12 months, but vacancy remains near a five year high.
Net rental rates increased by $0.43 psf this quarter to $14.60 psf, which is down from the same time last year and reflects the worst annual performance for the West since 2003.
Significant West market transactions include:
�S.P. Richards Company renewed for 66,779 SF at 1325 Clarke Street, Brampton
�Newell Industries Canada Inc. subleased 42,788 SF at 178 South Service Road, Oakville
�NCR Canada Ltd. leased 34,313 SF at 6865 Century Avenue, Mississauga
The North market built upon the gains reported in the third quarter with the second straight quarter of positive absorption, at 84,078 SF in the fourth quarter. Vacancy rates dropped from 7.7% to 7.0% and the net rental rate increased $0.04 psf to $16.76 psf. Again, similar to the third quarter, most of the leasing activity took place in the Class B market with the vacancy rate dropping 180 bps to 2.4%. This was driven by 64,998 SF of positive absorption in the North Yonge Class B market, which brought the North market as a whole to virtually flat absorption for 2009 at negative 472 SF, which is positive news in light of the economic environment.
Significant North market transactions include:
�Toronto Transit Commission subleased 33,000 SF at 5160 Yonge Street, Toronto
�Ontario Realty Corporation leased 16,000 SF at 5001 Yonge Street, Toronto
In 2009, the Suburban market shed 100,000 SF more than it absorbed throughout all of 2008. Net absorption was positive 368,822 SF for the fourth quarter. This was largely due to 439,385 SF of absorption in the West. This was tempered by loses in the East, and a minor gain in the North. This caused the vacancy rate to remain virtually unchanged, up only 10 bps to 11.7%; the highest Suburban vacancy rate since the third quarter of 2005.
The overall quoted asking net rental rate rose a nominal $0.10 psf to close the quarter at $14.00 psf.
Significant Suburban market transactions this quarter include:
� Royal Bank of Canada renewed 37,000 SF at 3300 Highway 7 West, Vaughan
� Ontario Lottery and Gaming Corporation renewed 77,000 SF at 4120 Yonge Street, Toronto
� Just Energy Corporation leased 46,236 SF at 6345 Dixie Road, Mississauga.
The East market was a reflection of the GTA market as a whole this quarter. The vacancy rate rose 70 bps to a GTA high of 13.9% due to 154,641 SF of negative absorption and net rental rates dropped $0.07 psf to $12.92 psf. The malaise felt in the East market is symptomatic of conditions in the City at large. All submarkets experienced negative absorption, save minimal growth in Consumers Road and East York/Don Mills South.
The largest positive change came in the sublet market, as sublet space as a percentage of total vacant space fell from 22.5% to 16.8%.
Significant East market transactions this quarter include:
�FinancialLinx renewed their 40,000 SF lease at 2001 Sheppard Avenue East, Toronto
�DMTI Spatial Inc. subleased 25,500 SF at 15 Allstate Parkway, Markham
�CAA South Central Ontario subleased 25,000 SF at 100 Commerce Valley Drive, Markham
MarketView Toronto Office
This disclaimer shall apply to CB Richard Ellis Limited, a real estate brokerage, and its Canadian affiliates, CB Richard Ellis Alberta Limited, CB Richard Ellis Manitoba Limited, CB Richard Ellis Advisory Services Inc., and CB Richard Ellis Québec Limitée (collectively �CBRE�).
Average Asking Lease RateRate determined by multiplying the asking net lease rate for each building by its available space, summing the products, then dividing by the sum of the available space with net leases for all buildings in the summary.
Net LeasesIncludes all lease types whereby the tenant pays an agreed rent plus most, or all, of the operating expenses and taxes for the property, including utilities, insurance and/or maintenance expenses.
Market CoverageIncludes all competitive office buildings 10,000 square feet and greater in size.
Net AbsorptionThe change in occupied square feet from one period to the next.
Net Rentable AreaThe gross building square footage minus the elevator core, flues, pipe shafts, vertical ducts, balconies, and stairwell areas.
Occupied Square FeetBuilding area not considered vacant.
Under ConstructionBuildings which have begun construction as evidenced by site excavation or foundation work.
Available Square FeetAvailable Building Area which is either physically vacant or occupied.
Availability RateAvailable Square Feet divided by the Net Rentable Area.
Vacant Square FeetExisting Building Area which is physically vacant or immediately available.
Vacancy RateVacant Building Square Feet divided by the Net Rentable Area.
NormalizationDue to a reclassification of the market, the base, number and square footage of buildings of previous quarters have been adjusted to match the current base. Availability and Vacancy figures for those buildings have been adjusted in previous quarters.
For more information regarding the MarketView, please contact: Ian M. Thompson, Senior Research AnalystCB Richard Ellis 145 King Street West, Suite 600Toronto ON M5H 1J8T. 416.815.2346 F. [email protected]
146.5 million SF of office spaceGTA
31.9 million SF of office space representing 21.8% of the GTA office marketWest
25.1 million SF of office space representing 17.1% of the GTA office marketEast
11.6 million SF of office space representing 7.9% of the GTA office marketNorth
78.0 million SF of office space representing 53.3% of the GTA office marketCentral
The final quarter of 2009 saw a continuing increase in availability
rates and decrease in average occupancy costs per SF across the
Greater Toronto Area (GTA). Overall availability rates for the city
rose to 11.4% from 11.2% in the previous quarter. All areas of
the city followed the same trend with regards to availability with
the North District seeing the largest percentage increase from
8.5% in Q3 to 9.0% in Q4. Conversely, the West District remained
almost flat with less than a 0.1% increase in availability.
Availability in the CBD rose from 12.4% to 12.7% over the last
quarter, though class A availability actually dropped from 13.6% to
13.1%. This decrease was offset primarily by class C space,
where the availability rate leapt from 7.0% in Q3 to 24.6% in Q4
due to the remarketing of an entire 190,000 SF building. While
the class C market in the CBD is relatively small in absolute terms,
the increase in available square footage in this class still more than
offsets the decrease in class A properties.
As illustrated in the Q3 market report, average gross rental rates
are becoming increasingly misleading since landlords are offering
increased inducements in order to keep rates high. While this
practice continues, it can't fully mask the fact that average rates
are dropping. Average rates across the GTA fell by $0.26/SF in the
last quarter to $34.40/SF. The drop was even larger in the CBD,
with rates declining from $53.69/SF in Q3 to $52.96/SF by the end
of the year.
While the overall availability rate has increased, the availability
rate for class A properties declined in Q4 2009, indicating a
flight to quality.
After rapidly rising throughout late 2008 and most of 2009,
the amount of sublease space available decreased by nearly
100,000 SF.
The commercial real estate outlook for 2010 remains murky as the
new year begins. Most analysts are predicting that availability
rates will continue to rise for at least the next two quarters, while
rental rates should continue to fall. However, given that certain
building classes in certain areas are outperforming others, it is
important that tenants be armed with as much information as
possible before considering their next move.
�
�
Toronto, OntarioT e n a n t ’ s G u i d e N o r t h A m e r i c a n M a r k e t s F o u r t h Q u a r t e r 2 0 0 9
0%
5%
10%
15%
Class A
CBD
Class B
CBD
Class A
Suburban
Class B
Suburban
Q2 2009 Q3 2009 Q4 2009
GREATER TORONTO AREA OFFICE REPORT 3Q09 1
3Q09
ECONOMY Ontario is feeling the brunt of the global recession, with its overall unemployment rate up to a 15-year high of 9.4%. The Toronto Census Metropolitan Area (CMA) has an unemployment rate of 10.2%. Canada-wide, total employment has fallen by 387,000 jobs since October 2008, with 207,000 of those jobs�or 53% of the total�lost in Ontario. Manufacturing and construction took the greatest hits, with the ripple effect extending to the office sector, as evidenced by the number of tenants who have taken measures to reduce their occupancy. GDP growth for 2009 is expected to contract by 2.3%; however, employment has stabilized and some job growth was experienced in August 2009.
OVERVIEW GTA office markets saw absorption nudge its way into positive territory in the third quarter, providing some hope that the impact of the downturn will not be as severe as initially predicted. While the increase in absorption is a positive signal for GTA landlords, demand is expected to remain weak well into 2010 as a result of the severely impacted US economy.
Tenants were more active in the marketplace in the third quarter, although they remain focused on the preservation of capital and minimizing cash outflow. This is resulting in a greater proportion of renewals and strong incentive to consolidate in cases where tenants have multiple locations. Overall, tenants are contracting, although there is evidence of some expansions in the government, banking and professional services sectors. While the amount of sublet space returning to market slowed over the third quarter, that could change should business continue to be pressured by weak economic fundamentals.
Two significant office towers were completed in Downtown Toronto in the third quarter. Cadillac Fairview�s RBC Centre brings 1.25 million square feet (msf) of inventory to market, and Brookfield Properties� Bay Adelaide Centre adds 1.16 msf. These buildings are approximately 73% leased, although a significant amount of space will be displaced as tenants relocate from existing buildings into these new locations.
Suburban markets have been hit much harder during this downturn�relative to the first year of the 2001 contraction�from an absorption perspective. One reason for this is the close connection that many suburban businesses have to the US markets.
OUTLOOK Demand is expected to remain weak in the foreseeable future as tenants continue to take the measures necessary to limit capital expenditures and cash outflow. Tenants who address occupancy decisions will be more likely to contract than expand, and to take advantage of early renewals to either negotiate more favourable leases or relocate into new buildings. Menkes� 680,000-square foot (sf) development located at 25 York Street in the Downtown south will open in the fourth quarter, with other smaller developments following in the coming quarters. These completions, along with the displacement of space resulting from the shifting of tenants from older to newer buildings, will result in high downtown vacancy rates for premium space in the next year. With over 2.1 msf of new development yet to be completed, vacancy will decrease only when existing businesses begin to expand and market conditions become more conducive to new business development.
BEAT ON THE STREET
�Tenants may be back on the street, addressing their occupancy decisions, but the likely outcome of those decisions will continue to be contractions for some time to come. With rental rates now shifting downward, the market is being perceived as much more of an opportunity � from a tenant perspective.�
- Paul Morse, Senior Managing Director, Office Leasing
ECONOMIC INDICATORS 2007 2008 2009F GDP Growth 2.3% 0.4% -2.3%
Source: TD Bank Financial � TD Economics Quarterly Economic Forecast
MARKET FORECAST
VACANCY will continued to rise based on projected space returning to market.
ABSORPTION will weaken below third quarter results over the next few quarters.
SUBLET SPACE will increase at a slower rate over the next few quarters.
OVERALL RENT VS. VACANCY
$10
$15
$20
$25
2005 2006 2007 2008 3Q09
psf/y
r
0%
3%
6%
9%
12%
15%
CBD-Rent Non-CBD-RentCBD-Vacancy Non-CBD-Vacancy
GREATER TORONTO AREA OFFICE REPORT
2
GTA OFFICE REPORT 3Q09
OVERALL GTA Vacancy All Classes
6,000
7,500
9,000
10,500
12,000
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Vacancy SF Vacancy Rate
OVERALL GTA Leasing Activity All Classes
1,000
1,500
2,000
2,500
3,000
3,500
4,000
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
GTA vacancy has increased from 5.1% to 7.2% since the downturn began. Total available space has increased by 3.7 msf, or 46%. In the same period during the 2001 contraction, available space had increased by 4.6 msf.
The completion of the RBC Centre and the Bay Adelaide Centre in Downtown Toronto in the third quarter added 630,000 sf of vacant space to Downtown availabilities.
Leasing activity spiked in the third quarter, due mainly to the opening of the new downtown towers. (Leasing activity associated with new inventory is recognized in the quarter the building is ready for occupancy.)
Of the total 3.8 msf leased, 1.75 msf were in the RBC Centre and the Bay Adelaide Centre.
Sublease Availability All Classes
1,000
1,500
2,000
2,500
3,000
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Absorption All Classes
(1,000)
(600)
(200)
200
600
1,000
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
While activity in a single quarter does not support a trend, it can be a leading indicator of change to come. One key observation in the third quarter is that the rate of growth in sublet space is slowing.
Sublet space returning to market within suburban markets has begun to decelerate significantly, rising only 78,000 sf compared to almost 300,000 sf in the previous quarter. This may suggest short term market stability.
Absorption showed some resilience over the third quarter.
Central markets are expected to experience negative absorption in the coming quarters.
3
GTA OFFICE REPORT 3Q09
FINANCIAL CORE Vacancy All Classes
500
1,000
1,500
2,000
2,500
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Vacancy SF Vacancy Rate
Available space has increased by approximately 1 msf during the
past recessionary year. Of this increase, approximately 30% represents new available space introduced by the Bay Adelaide Centre.
As the remaining tenants relocate into the Bay Adelaide Centre, a significant amount of space will be displaced, driving the vacancy rate up significantly in the next few quarters.
Sublease Availability All Classes
200
300
400
500
600
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Sublet space continued to rise over the quarter, coming to rest at
about 580,000 sf. A significant new sublet to market was 56,000 sf at 33 Yonge Street. This space was originally leased by EDS and comes to market six months after Hewlett Packard�s acquisition of EDS.
It is very possible more sublet availabilities will hit the market before total sublet space finds its peak.
FINANCIAL CORE Leasing Activity All Classes
300
450
600
750
900
1,050
1,200
1,350
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
Leasing activity relating to tenants relocating into the Bay Adelaide
Centre was recognized in the third quarter, as this development is now complete.
Tenants became more active, as competitive opportunities and realigned business strategies are enticing them back to the negotiating table.
The Laurentian Bank of Canada renewed and expanded at 130 Adelaide Street West, locking down some 90,000 sf for a 10-year term.
Absorption All Classes
(300)
(200)
(100)
0
100
200
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
The most significant downward pressure on occupied space in the
third quarter was caused by a return of space resulting from the relocation of RBC staff into the new newly completed RBC Centre and the 56,000-sf EDS sublet at 33 Yonge Street.
During the 2001 downturn, over the 11-quarter down cycle, absorption in the financial core averaged negative 110,000 sf per quarter in premium space buildings. The market is now four quarters into this current recessionary cycle, and demand has been slightly stronger at an average of negative 68,000 sf per quarter.
4
GTA OFFICE REPORT 3Q09
DOWNTOWN FRINGE Vacancy All Classes
500
800
1,100
1,400
1,700
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Vacancy SF Vacancy Rate
DOWNTOWN FRINGE Leasing Activity All Classes
0
200
400
600
800
1,000
1,200
1,400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
The Downtown Fringe vacancy rate rose to 5.2% from 4.4% last quarter. Approximately 330,000 sf of additional available space will come to market in the fourth quarter, barring transacted space.
During the first quarter of 2010, in excess of 445,000 sf of additional available space will return to market, and vacancy will rise.
The spike in leasing activity relates in part to activity at the recently completed RBC Centre.
Scotia Bank renewed 89,000 sf at 100 Yonge Street, and PricewaterhouseCoopers leased an additional 72,000 sf at 18 York Street.
Sublease Availability All Classes
0
100
200
300
400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Absorption All Classes
(200)
(100)
0
100
200
300
400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
Very few new sublets hit the fringe markets in the third quarter of
2009 and the result was declining sublet availability.
One significant sublet will bring approximately 27,000 sf to market in the fourth quarter. On the horizon, approximately 140,000 sf of new sublet space will hit the market in the first quarter of 2010 in the Downtown North market.
The spike in absorption above is for the most part a reflection of the occupied floors of the newly completed RBC Centre at the end of the third quarter.
Some of the space returning to market as a result of the RBC relocation will be recognized in the fourth quarter.
5
GTA OFFICE REPORT 3Q09
MIDTOWN Vacancy All Classes
0
200
400
600
800
1,000
1,200
1,400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Vacancy SF Vacancy Rate
MIDTOWN Leasing Activity All Classes
0
50
100
150
200
250
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
The Midtown vacancy rate has held remarkably flat during the past year, given the severity of the downturn. The vacancy rate actually fell to 5.9% from 6.4% in the Midtown Bloor market, and to 8.9% from 9.2% in the Midtown Eglinton market.
Vacancy is likely to rise in the next four quarters, as approximately 260,000 sf of larger blocks of space are being tracked to return to the midtown markets in this period. The Yonge Eglinton Market will see the lion�s share of this space.
Four-quarter average leasing activity of approximately 200,000 sf per quarter is 35% lower than levels achieved prior to the economic downturn.
The Ontario College of Teachers purchased eight floors totaling approximately 85,000 sf at 101 Bloor St. West.
Sublease Availability All Classes
0
50
100
150
200
250
300
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Absorption All Classes
(300)
(200)
(100)
0
100
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
Total sublet space continued to rise over the third quarter, coming
to rest at 266,000 sf by quarter-end.
The Ontario College of Teachers transaction will result in a 64,000-sf, short-term sublet coming to market, likely in the summer of 2010. This will result in about 64,000 sf returning to market at 121 Bloor Street East. Cryptologic Ltd brought 40,000 sf to market at 55 St. Clair Avenue West.
Demand is expected to remain weak, and occupied space is likely to fall over the coming quarters.
Most of the negative absorption in the second half of 2008 was generated by tenants relocating out of the Midtown market.
6
GTA OFFICE REPORT 3Q09
GTA EAST Vacancy All Classes
2,000
2,300
2,600
2,900
3,200
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
4.0%
6.0%
8.0%
10.0%
12.0%
Vacancy SF Vacancy Rate
GTA EAST Leasing Activity All Classes
0
200
400
600
800
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
Overall vacancy fell to 9.3% during the quarter, driven by leasing activity in class B space, which drove down vacancy in this asset class to 8.1% from 9.6% last quarter.
Approximately 400,000 sf in significant blocks will be returning to market, putting upward pressure on vacancy over the next four quarters.
Leasing activity is picking up in the GTA East, as evidenced by 470,000 sf completed in the third quarter.
Thales Canada Inc. leased approximately 195,000 sf at 105 Moatfield Drive and will occupy the majority of the building beginning in the second quarter of 2010. It is expected that they will displace some 165,000 sf at 1235 Ormont Drive.
Sublease Availability All Classes
0
100
200
300
400
500
600
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Absorption All Classes
(300)
(200)
(100)
0
100
200
300
400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
It is expected that 30,000 sf of space displaced as a result of the
relocation of Global Credit and Collection will return to market in the second quarter of 2010.
Sublet availability is hitting its stride and will rise or fall based on transaction momentum in the quarters to come.
The completion of key transactions, some of which are highlighted above, helped push absorption into positive territory in the third quarter.
With a large amount of available space expected to return to market in the next three quarters, absorption is likely to shift back into negative territory, although there is a renewed strength in tenant activity in the GTA East.
7
GTA OFFICE REPORT 3Q09
GTA NORTH Vacancy All Classes
400
500
600
700
800
900
1,000
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Vacancy SF Vacancy Rate
GTA NORTH Leasing Activity All Classes
0
100
200
300
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
The GTA North vacancy rate remains very tight at 6.6%, up from 5.8% last quarter.
Approximately 170,000 sf in significant blocks of available space will return to market during the next two quarters, and this will continue to put upward pressure on vacancy.
Leasing activity of 142,000 sf this quarter indicates that the GTA North is not yet experiencing a significant improvement in tenant activity.
Chaitons LLP completed a 22,000-sf lease transaction at 5000 Yonge Street and will be relocating at the end of the first quarter of 2010.
Collective Point of Sale Solutions leased 14,200 sf at 4576 Yonge Street and will be taking occupancy during the first quarter of 2010.
Sublease Availability All Classes
0
100
200
300
400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Absorption All Classes
(100)
(50)
0
50
100
150
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
Sublet space continued to rise in the third quarter, coming to rest
at 320,000 sf.
There is little on the horizon in terms of additional blocks of sublet space expected to return to market.
Absorption was negative 40,000 sf during the quarter, slightly above the four-quarter average of negative 53,000 sf.
Some smaller transactions were completed, but the amount of space returning to market outweighed the completed transactions in the third quarter.
8
GTA OFFICE REPORT 3Q09
GTA WEST Vacancy All Classes
0
1,000
2,000
3,000
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
0.0%
3.0%
6.0%
9.0%
Vacancy SF Vacancy Rate
GTA WEST Leasing Activity All Classes
0
200
400
600
800
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Leasing Activity
The vacancy rate in the GTA West is climbing, but remains very tight at 7.9%. Demand is currently weak and multiple-location tenants are more likely to consolidate to reduce occupancy costs, further reducing occupied space.
Class A space will see over 500,000 sf come to market in the fourth quarter. This includes the completion of the 150,000-sf building at 1513 North Service Road.
Leasing activity increased to 624,000 sf in the third quarter, still significantly below historical standards in a normal economic cycle. Most transactions are resulting in contractions of space.
Takeda Pharmaceutical leased 25,300 sf at 6750 Century Avenue at the beginning of the third quarter, for first quarter 2010 occupancy. KCI leased 25,000 sf at 75 Courtneypark Drive for early 2010 occupancy.
Sublease Availability All Classes
0
200
400
600
800
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Sublease Availability
Absorption All Classes
(300)
(200)
(100)
0
100
200
300
400
3Q08 4Q08 1Q09 2Q09 3Q09
(000
's o
f sf)
Absorption
Total sublet space rose to 621,000 sf in the third quarter of 2009.
5100 Spectrum Way and 110 Matheson Blvd West will see sublets of 40,000 sf and 46,000 sf respectively come to market over the fourth quarter, putting additional downward pressure on rental rates.
Absorption showed significant improvements during the third quarter, but still only rising to approximately zero.
Absorption should dip back into negative territory in the coming quarters, as over 750,000 sf of space will come to market across all classes over the fourth quarter of 2009.