Toronto has a 'chronic shortage' of office space

Toronto’s office market continues to magnetize a wide range of industries, and this heated demand has become starkly apparent during the fourth quarter of 2018 when the vacancy rate of the asset class fell to 2.7%, according to a CBRE Group report.

A growing number of tech companies hungering for work spaces are moving into the market, which fuelled the demand that has boosted commercial rental rates to $35.37 per square foot, having increased by $2.50/sf from Q3.

For perspective, Montreal had rental rates of $22.76/sf on a 9.4% vacancy rate during Q4 2018. Vancouver had $37.20/sf on a 3.8% vacancy, according to The Canadian Press.

CBRE noted that this “chronic shortage” still came about despite the prodigious amount of new space under construction, with Toronto having 7.3 million sf pending as of the fourth quarter. This represented a nearly 1.3-million sf increase from the quarter prior, and far outstripped Vancouver’s 2.86 million sf and Montreal’s 954,510 sf.

Read more: Offices have become the Toronto commercial market’s superstar assets

CBRE stated that on the whole, demand has constantly outpaced supply nationwide, with the overall Canadian office vacancy rate shrinking to 11.9% in Q4 2018. The tally for total net absorption was at 2.7 million sf during the same quarter, more than two-fold the amount of new space delivered across Canada.

As of the end of 2018, approximately 14.2 million sf of new commercial space was under construction nationwide, majority of it in Toronto, Vancouver, and Montreal. This was the strongest development activity encountered since Q1 2016.