Downtown office space availability to decline further, predicts NKF Devencore study

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Downtown Toronto’s available office space is predicted to drop even lower within the next three years and landlords are expected to use their leverage in terms of rentals. (http://commons.wikimedia.org)

Downtown Toronto’s office market is currently suffering with insufficient tenant opportunities and this crisis is expected to worsen in the next two to three years as demand for top-tier space continues to rise, said the latest Newmark Knight Frank Devencore study which was released Oct. 31.

The study, which focuses on the Toronto Downtown Fall 2017 Office Market, pointed out that tenants from financial, legal, media, and tech sectors are increasingly demanding more office spaces. However, major developments are still under construction with completion slated in 2020 to 2021.

Notable upcoming projects that are expected to deliver more office space to the area are: the 254,000 sq. ft. King Portland Centre, where only 18,500 sq. ft. is presently available, and the 400,000 sq. ft. Daniels Waterfront office condo development where 120,000 sq. ft. remains available.

During 2Q17, the vacancy rate for all office classes increased slightly from 6.4 per cent to 6.7 per cent despite the addition of more than 990,000 sq. ft. of new space. The average gross rent for all office class also abated from $42.95 per sq. ft. to $42.35.

The coworking model is also discussed in the study as it is considered by NKF Devencore as “one of the more interesting trends to emerge of late.” Under this model, the lease of an office space is shared by different individuals or small firms, allowing tenants to enjoy flexible lease terms and cheaper up-front costs.

Shared office spaces commonly attract young professionals, project teams and startups. However, this model is being transformed by office space providers to cater to larger organizations. WeWork, for instance, is already offering custom office spaces to organizations with more than 500 workers.

Moreover, the study encouraged tenants with leases that will expire in the next two years to already begin exploring their options. Older Class A buildings may have available spaces but landlords in downtown Toronto will use their leverage when negotiating within the next three years, NKF Devencore warned.

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