The bidding wars that came to characterize Toronto's housing market in recent years are now playing a role in its office space market, according to real estate brokerage Cushman & Wakefield.
The amount of available space in the city's "B Class" office properties (office properties are ranked on a scale where "A Class" buildings are the top quality ones in the most sought-after locations) has been very low for nearly two years now.
"For the first time in many years we've seen tenants bidding against tenants for space – highlighting the strength of the landlord's market," said Michael Caplice, senior managing director of office leasing at Cushman & Wakefield. "This is highly unusual in downtown Toronto."
At the end of March the vacancy rate for B Class space was 3.7 per cent, marking the seventh quarter in a row that it had come in under 4 per cent. In a balanced market it would be closer to 7 to 9 per cent, according to Mr. Caplice. With people feeling better about the economy, many tenants are looking to expand but their options are limited and prices remain high downtown.
"In this cycle we only expect things to get more difficult for tenants as there will be upward pressure on rental rates with no new supply projected to open up in the brick and beam market," he said.
The expected construction of new office towers in the coming years will likely attract some tenants who are currently in B Class space, freeing up some space.