Landlords drop rents on commercial space
Weak demand for office space and an influx of new buildings has caused landlords to drop rents for commercial buildings in the GTA.
Average asking rents fell 9 per cent or from $17.83 in 2008 to $16.20 per square foot by the end of last year, according to a report by Colliers International Monday.
"The impact of the recession still lingers on Toronto’s office market," said the real estate services firm.
Office vacancies continued on an upward trend, hitting 6.1 per cent equal to 11.3 million square feet at the end of 2009 – a 20 per cent increase. Colliers says things will get worse before they get better, with vacancies hitting 6.9 per cent before the trend is reversed.
"Historically, there has been a lag between economic recovery and its impact on the GTA office market," said John Arnoldi, managing director with Colliers.
Another problem has been with sub-leases, where troubled companies looking to reduce overhead dump part of their office space back onto the market.
The sub-lease market is up 48 per cent from a year earlier, and is now above one million square feet.
That space now competes with existing vacancies and accounts for about 10 per cent of total vacancies.
Meanwhile, commercial landlords say their biggest concern during the recession is the financial stability of tenants as tough economic times are resulting in higher rent defaults.
In a survey of Canadian commercial investors by Colliers, 92 per cent of respondents said "tenant financial credit rating" was at the top of their list when it came to making a leasing decision. This compares to 33 per cent when the survey was last taken in 2007