Toronto CIBC SQUARE | 241.39m | 50s | Hines | WilkinsonEyre

  • Thread starter Suicidal Gingerbread Man
  • Start date
we have 3.5 Million sq feet of space coming on line in less than 2 years.

The downtown vacancy rate is around 6% (including sublet space 7%) and dropping so the estimated 12% from a few years ago is out of the question
12% represents the amount that it will be after all the proposed and under construction buildings are completed in about 2-3 years. With millions of square feet being added (and perhaps, not necessarily an increase in demand), 12% is not out of the question. This is the estimate of people who are paid to figure these figures out.
I wonder, though, how representative those vacancy rates are of the ability of a company to get contiguous space; I remember hearing before the current round of office construction that the issue wasn't so much vacancy overall but the fact that any big company looking to expand its presence would end up with small offices in a half-dozen different buildings.

Also, I wonder if the slow but steady pace of office-condo conversions will push down the vac rate a bit.
Here is an interesting, if slightly outdated, look at GTA office demographics:

This first thing I noticed was that even a 12.7% vacancy rate is still quite good, compared to almost every other market in North America. In fact, an office vacancy rate below 10% or so is probably fairly harmful to the economy, with skyrocketing rents leading to businesses moving away, or not moving into the area. My guess is that the 'optimum' vacancy rate would be around 12-15 percent.

Second, from 1992 to 2005, almost 2 million square feet of office space was taken from the market in the Midtown area alone, due to conversion to residential use, or simple demolition.

The total downtown (south of Bloor) office space in 2005 was around 65 million square feet, so 3.5 million square feet would represent about a 5% increase in downtown office space. Presumably, other office projects must be coming online to get from a ~5% vacancy rate to a 12.7% vacancy rate.

Alklay, with all respect I am not sure where the 12% figure came from, and it seems well outside anything reasonable in the current environment.

LePage's review for the second quarter of 2007 indicates a vacancy rate of 4.9% in the financial core district, down from 5.1% in the first quarter. It has been dropping steadily. Total inventory is 33 million square feet, at present, so 12% would be almost 4 million square feet. J.J. Barnicke's vacancy calculation for 2nd quarter 2007 is 5.83% for the whole downtown area (wider than the financial district).

These are considered to be fairly low figures. A 7% to 10% vacancy rate is often considered to be a market "in balance", where rental rates tend to remain stable, not unduly favoring either owners or tenants.

For several years it has been hard to find contiguous space over 50,000 square feet, in the financial district, and the situation will continue to worsen until new buildings are completed in 2009.

Caisse de depot are highly experienced and professional, and they will have done their homework prior to purchasing this property earlier this year.
This is the estimate of people who are paid to figure these figures out.

The same people that predicted a severe housing market correction to occur the following year more than two years ago. They may be paid but that hardly suggests they are on the ball more often than not. The 12% is either outdated or incredibly wrong.
The figure takes into account the addition of millions of square feet. I am surprised that it is as low as 12% and I would not be surprised, if they are unable to rent a lot of the space in the new buildings, if the figure goes higher than 15%. A lot of the 'new' tenants are simply moving from other buildings in the core - which will leave vacant space. I am not sure why anyone would think it is 'incredibly' wrong when the addition of millions of square feet only pushes up the vacancy rate to 12%. Not a lot of businesses are moving into the core.

And in addition, why would one think that these people predicted a severe housing market correction? The commercial market is very different from the residential.
Caisse to build office tower in downtown Toronto

Bloomberg - September 15, 2007

Caisse de dépôt et placement du Québec, Canada's biggest pension-fund manager, will build a 40- to 50-storey office tower in downtown Toronto to expand its real estate holdings in Canada's largest city. SITQ, the Caisse's office building unit, bought the land at 45 Bay St. in May, spokeswoman Amelie Plante said yesterday. She declined to say when the tower might be built or how much the project would cost. The proposed building, located across the street from the Air Canada Centre, would house about 1.2 million square feet of office space and fill a void in the Caisse's real estate portfolio. Only one of SITQ's four Toronto-area buildings is in the city's downtown core.
The Financial Services industry is one of the few and major industries growing in the Ontario Economy.

Demand for downtown office space should remain constant for the forseeable future; especially with financing and investment requirements within the Canadian resource and construction sectors.
Agreed. Financial services are growing (despite the subprime loan debacle), and they're the engine of the City of Toronto's economy. Moderate growth in office space demand should continue growing unless we do something crazy like allow bank mergers, which will result in the layoff of thousands of headquarters staff and the emptying out of at least one full tower complex downtown.
...and, presumably, as the financial sector grows so too will the sectors that get some or part of their living from it--law, consultancy, etc. So there could be a decent knock-on effect, as far as demand for office space goes.
Normal projects take time to develop - especially office towers.

I think we in Toronto are too spoiled expecting the timeline for all towers to progress as such:
Jan - Hear rumours of a new tower
Feb - See official documentation on it
Mar - Teaser Ads
Apr - Starts selling
Jul - Excavation

Unless otherwise known, a company owns the land and intends to develop an office tower when the market timing is right. This may be in 6 weeks, 6 months, or 6 years - the office market can be quite fickle and is subject to boom and busts periods to a greater degree than residential projects.