Q4 2010 GTA Office Report DTZ Barnicke

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Q4 2010 Greater Toronto Area Office Report. Profiles changes in vacancy rates, office rental rates and changes in absorption for Toronto.

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  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20111

    Executive Summary

    Demand for office space slowed in Q4 2010 in the Greater Toronto Area (GTA) resulting in negative absorption of 788,316 square feet.

    The GTA vacancy rate increased by 76 basis points to 8.5% after fluctuating between 7.9% and 8.8% earlier this year.

    Maple Leaf Square located in Downtown South was the only building completed in Toronto during the fourth quarter. The building was 100% leased upon completion and therefore, did not affect the vacancy rate in the market.

    Approximately 1,371,593 square feet of office space is under construction in the GTA including: 18 York Street in the Downtown South node and 610 Applewood Crescent, 6925 Century Avenue and 7125 Mississauga Road in the GTA West.

    The percentage of direct versus sublet space remained unchanged this quarter at 82% direct space available and 18% sublet space available.

    Overall average net asking rates in the GTA increased by $0.38 to $17.57 in Q4 2010 from $17.19 in Q3 2010.

    Uptown North York achieved the lowest vacancy rate (3.6%) in the GTA, whereas the Dixon/Atwell node achieved the highest rate increasing again this quarter to 21.7% from 20.5% in Q3 2010.

    www.dtzbarnicke.com

    Office Property MarketGreater Toronto Area

    Q4 2010

    ContentsEconomic Overview 2GTA Overview 3- 5

    Greater Toronto Area 6

    Downtown 7 -12

    Midtown 13 - 16

    North Yonge Corridor 17 - 20

    GTA North East 21 - 26

    GTA West 27 - 40

    ContactsWarren DSouzaResearch Manager+1 905 848 1215warren.dsouza@dtzbarnicke.com

    Sarah LamberskyResearch Manager+1 416 865 5104sarah.lambersky@dtzbarnicke.com

    DTZ Barnicke2500-401 Bay StreetToronto, Ontario, Canada, M5H 2Y4

    Tel: +1 416 863 1215Fax: +1 416 863 9555

  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20112

    Node Contents

    Greater Toronto Area 6Downtown 7

    Financial Core 8South 9West 10North 11East 12

    Midtown 13Yonge / Bloor 14Yonge / St. Clair 15Yonge / Eglinton 16

    North Yonge Corridor 17York Mills 18Downtown North York 19Uptown North York 20

    GTA North East 21Don Mills / Eglinton 22DVP / 401 23Markham 24Richmond Hill 25Scarborough 26

    GTA West 27427 Corridor 28Airport Strip 29Airport Corporate Centre 30Airport West 31Dixon & Attwell 32Mississauga City Centre 33Hurontario North 34Mississauga South 35Meadowvale 36Toronto West 37Brampton 38Oakville 39Burlington 40

    Economic Overview

    Economic OverviewAfter reaching its pre-crisis peak in output, the Canadian economy will experience modest growth and see a return of demand in 2011 according to a Bank of Canada (BoC). A modest pattern of growth will be supported by an increase in business spending, job growth, improved U.S. economy visible by a return of private domestic demand, as well as an increase in foreign activity resulting from the Federal Reserves treasury purchase and extended stimulus package. Given this modest growth prediction, the BoC projects the Canadian economy to expand by 2.4% in 2011 and 2.8% in 2012.

    Leading IndicatorsReal GDP slowed to 1.0% in Q3 2010 before gaining 0.4% in November which put the economy on track to achieve TD Economics' prediction of 2.3% GDP growth in Q4 2010. In contrast to early 2010, when real GDP reached 6.1% (Q1 2010) and 5.4% (Q2 2010), 2011 figures will be similar to GDP trends in the second half of 2010. The BoCs January Monetary Policy report revised its expectations upward that the Canadian economy will expand by 2.4% in 2011 and 2.8% in 2012, in contrast to its October Monetary Policy reports projections of 2.3% in 2011 and 2.6% in 2012.

    Economic drivers in Canada included an increase in business investment, positive demand expectations for goods and services, an increase in consumer spending as well as an increase in household investment.

    During the first six months of 2010, government and consumer spending were responsible for stimulating a significant proportion of the economy but going forward in 2011 as government spending winds down and household balance sheets continue to bring back in check, it will be an increase in foreign activity and domestic business investment that will contribute to GDP growth.

    In Q4 2010, the BoC decided to maintain its target overnight rate at 1% after a of a percent increase in Q3 2010 extending favourable credit conditions to businesses and consumers alike. Despite low interest rates, since June 2010, housing starts have followed a downward trend. This quarter, housing starts fluctuated seeing a 13.3% decrease in December after an 18.2% jump in November.

    Lagging IndicatorsThe unemployment rate in Canada held steady at 7.6% in Q4 2010 declining from 8.0% in Q3 2010. 22,000 new jobs were created in December while overall, 368,500 jobs were created in 2010.

    Finally, according to the Bank of Canadas Business Outlook Winter Survey firms reported higher sales growth over the past 12 months in contrast to the previous 12 months. They also reported an easing of credit conditions and expected modest growth to businesses in 2011. Companies tied to commodity related businesses expressed optimism dues to strength in commodity prices.

    TorontoTorontos unemployment rate kept pace with the national average and settled at 7.6% in December decreasing from 8.4% in November. Commercial permits also increased this quarter by 1.1% to 708 permits representing a value of $191.1 million.

  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20113

    Greater Toronto Area Overview

    As 2010 comes to a close, demand across most markets in the Greater Toronto Area (GTA) slowed as the city experienced negative absorption in Q4 2010.

    Of the 788,361 square feet of space not absorbed this quarter, the financial core, and GTA West saw the greatest amount of space brought back to market. However, despite the negative absorption overall, there were still pockets of growth includingDowntown South, Downtown West, the North York area, Markham as well as Mississauga South and Airport Corporate Centre.

    In light of this quarters trends and absorption figure, the vacancy rate increased from 7.9% in Q3 2010 to 8.5% in Q4 2010. (Chart 1) On a whole, absorption still continues to outpace new office completions in Toronto, thereby signaling healthy demand.

    Maple Leaf Square in Downtown South was completed this quarter adding approximated 225,000 square feet of space to the market however the building was 100% pre-leased and therefore did not affect the downtown cores vacancy rate.

    Ten buildings remain under construction in the Downtown South and GTA West markets which will add an additional 1.4 million square feet of office space over the next three years.

    In the GTA, the weighted average rental rate was stable this quarter as the vacancy rate for the city increased. (Chart 2) The Downtown Core commanded the highest average gross rental rate for Class A buildings at $58.35, an increase from $57.06 in Q3 2010. Burlington achieved the lowest average gross rental rate at $27.77 in comparison to Toronto Wests rate of $25.43 in Q3 2010. (Chart 3)

    Chart 3

    Chart 1 Chart 2

    GTA Weighted Average Gross Rent

    $0 $10 $20 $30 $40 $50 $60

    Downtown Core $54.60Downtown South $48.16

    Uptown North York $40.65Downtown West $39.81

    York Mills $38.91St. Clair/Yonge $36.66

    Bloor/Yonge $36.52Downtown North $36.49

    Downtown North York $34.73Eglinton $33.40

    Mississauga City Centre $32.97ACC $30.86

    Oakville $30.15Downtown East $28.39

    427 Corridor $27.99Meadowvale $27.57

    Markham $27.52Scarborough $26.98

    Richmond Hill $26.67DVP/401 $26.59

    Toronto West $26.36Don Mills/Eglinton $25.59

    Hurontario North $25.40Burlington $25.30

    Airport Strip $25.22Dixon Rd. & Attwell $25.12

    Mississauga South $24.20Brampton $22.59

    Airport West $22.35

    Gross Rent ($/sq ft)

    GTA Supply vs. Demand

    -3,000,000

    -2,000,000

    -1,000,000

    0

    1,000,000

    2,000,000

    3,000,000

    4,000,000

    5,000,000

    2001200220032004200520062007200820092010

    Squa

    re F

    eet

    Building Completions Absorption

    GTA Net Rent vs. Vacancy Rate

    $0.00

    $5.00

    $10.00

    $15.00

    $20.00

    $25.00

    Q3 06

    Q3 07

    Q3 08

    Q3 09

    Q3 10

    Rent

    ($)

    0.00%

    2.00%

    4.00%

    6.00%

    8.00%

    10.00%

    Vaca

    ncy

    Rate

    (%)

    GTA Net Rent Vacancy Rate

  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20114

    DRAFT

    Greater Toronto Area Overview

    GTA Vacancy Rates High/Low

    GTA Map

    Markets with lowest vacancy rates

    Uptown North York 3.57%

    Downtown North York

    Downtown North

    Mississauga South

    3.85%

    3.93%

    4.11%

    Markets with largest quarterly decrease

    Markets with largest quarterly increaseMarkets with highest vacancy rates

    Dixon/Atwell

    Downtown West

    Airport West

    Airport West

    Downtown South

    Oakville

    Airport Corporate

    York Mills

    Brampton

    Markham

    Airport Strip Yonge/St.Clair

    -2.04%

    -1.36%

    -1.35%

    -0.90%

    21.67%

    17.31%

    16.58%

    16.47%

    4.91%

    4.58%

    3.55%

    2.68%

  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20115

    GTA Office Market IntelligenceVacancy and Availability Rates

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    18%

    20%

    Finan

    cial C

    ore

    Bloor/

    Yong

    e

    Eglin

    ton/Y

    onge

    North

    Yon

    ge C

    orrido

    r

    Markh

    am

    Rich

    mond

    Hill

    Scarb

    oroug

    h

    Airpo

    rt

    Miss

    issau

    ga

    Bram

    pton

    Oakv

    ille

    Burlin

    gton

    Ava

    ilabi

    lity

    Rat

    e

    Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

    Office Vacancy Rates Across The GTA

    Availability Rates By Major Market Node Q4 2009 to Q4 2010

    Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage

    Markham / Richmond Hill

    8.7%

    Scarborough

    15.9%DVP / Don

    Mills

    10.2%

    Airport

    17.6%

    N. West

    5.7%

    427 Corridor

    8.7%

    North Yonge

    5.1%

    SC 6.6%

    Downtown 6.9%

    BL 6.7%

    Meadowvale

    10.5%

    Mississauga

    8.0%

    Oakville

    13.2%Burlington

    11.1%

    GTA Overall Office Vacancy Rate is 8.5%

    EG 10.2%

  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20116

    $17.13

    $12.40

    $13.74

    $19.39

    $19.92

    $24.73

    AverageAdditional

    80.9%

    82.9%

    77.6%

    55.2%

    88.1%

    83.2%

    Direct SpaceRatio

    19.1%

    17.1%

    22.4%

    44.8%

    11.9%

    16.8%

    Sublet SpaceRatio

    $17.56

    $15.12

    $13.08

    $17.32

    $16.94

    $25.14

    Average AskingRate

    130,268,550

    30,442,053

    24,066,276

    7,723,534

    14,171,932

    53,864,755

    Survey Inventory

    732,96713.0%11.2%West

    1,371,59310.0%8.5%GTA

    012.7%10.4%North East

    07.9%5.1%North Yonge Corridor

    Midtown

    Downtown

    Market Area

    08.6%7.8%

    638,6267.9%6.9%

    UnderConstruction

    AvailabilityRateVacancy Rate

    0

    2,000,000

    4,000,000

    6,000,000

    8,000,000

    10,000,000

    12,000,000

    14,000,000

    16,000,000

    18,000,000

    Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

    Squ

    are

    Feet

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    Per

    cent

    age

    Avail. Direct (Sq Ft) Avail. Sublet (Sq Ft) Availability Rate (%)

    -1,000,000

    -600,000

    -200,000

    200,000

    600,000

    1,000,000

    1,400,000

    1,800,000

    2,200,000

    Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

    Squ

    are

    Feet

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    Per

    cent

    age

    Net Absorption (Sq Ft) Availability Rate (%) Vacancy Rate (%)

    Q4 2010 Office Property MarketGreater Toronto Area

    Availability & Vacancy Direct & Sublet Availabilities

    Market Summary

    Direct "A"42% Sublet "A"

    12%

    Sublet "B"4%

    Direct "C"15%

    Sublet "C"1%

    Direct "B"26%

    Availabilities by Class & Type

    $0.00

    $5.00

    $10.00

    $15.00

    $20.00

    $25.00

    $30.00

    $35.00

    $40.00

    $45.00

    A B C Overall

    Dol

    lar A

    mou

    nt

    Net Rent ($/Sq Ft) Additional Rent ($/Sq Ft)

    Weighted Average Asking Rates & Additional Rents

    Notable PointsMap of Market Area

    The Greater Toronto Area experienced negative absorption this quarter.

    The availability rate increased by 76 basis points to 10.1% in Q4 2010 from 9.3% in Q3 2010.

    The average asking rate for direct space across all office classes increased $0.37 to $17.56 in Q4 2010 from $17.18 in Q3 2010.

    There are ten office buildings currently under construction in the GTA.

    There are 19 opportunities of space equal to or greater than 100,000 square feet in the GTA.

    * Weighted average rents are calculated based on publicly advertised rental rates, which may ormay not include inducements. Sample sizes vary node by node.

    Source: DTZ Barnicke* Market statistics, charts, and tables are based on the office inventory, excluding government occupied offices, owner occupied offices, and offices with less than 20,000 square feet of rentable office space.

  • Although the information contained within is from sources believed to be reliable, no warranty or representation is made as to its accuracy being subject to errors, omissions, conditions, prior lease, withdrawal, or other changes without notice and same should not be relied upon without independent verification. DTZ Barnicke Limited, Real Estate Brokerage 20117

    $24.73

    $13.72

    $19.55

    $18.79

    $21.59

    $27.18

    AverageAdditional

    83.2%

    98.6%

    94.5%

    85.4%

    43.7%

    84.8%

    Direct SpaceRatio

    16.8%

    1.4%

    5.5%

    14.6%

    56.3%

    15.2%

    Sublet SpaceRatio

    $25.14

    $14.67

    $16.95

    $21.02

    $26.57

    $27.42

    Average AskingRate

    53,864,755

    1,429,002

    7,551,335

    7,655,004

    3,406,713

    33,822,701

    SurveyInventory

    08.6%8.5%East

    638,6267.9%6.9%Downtown

    04.1%3.9%North

    06.0%5.3%West

    South

    Financial Core

    Market Node

    638,6268.5%4.6%

    09.2%8.0%

    UnderConstruction

    AvailabilityRate

    Vacancy Rate

    0

    1,000,000

    2,000,000

    3,000,000

    4,000,000

    5,000,000

    6,000,000

    7,000,000

    Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

    Squ

    a...