New supply to moderate rent growth in Toronto, Vancouver

The rate of rent growth in Toronto and Vancouver offices will noticeably slow down over the next few years, continuing the easing already visible this quarter, according to an analysis by CoStar Group Inc.

This deceleration will become more evident with the influx of new offices to be completed in the near future. Within five years, work on as many as 25 new office or mixed-use buildings is projected to be finished in downtown Toronto, along with 15 new towers in Vancouver.

In downtown Toronto, the 6% annual rent growth during Q2 2019 was noticeably lower than the peak of approximately 8% seen at the end of 2017.

In downtown Vancouver, the similarly 6% rent growth during this quarter was nearly half the 11% peak in Q3 2018. CoStar further predicted that this would improve to 1.5% by 2022.

“Vacancies are incredibly low in those two markets, rental rate growth has peaked, we’re seeing it come down in the data points were collecting,” CoStar director of market analytics (Canada) Roelof van Dijk told Bloomberg.

“Our forecasts show it’ll continue to come down as the new supply comes online in both of those markets, specifically in the downtown.”

In four years, Toronto’s vacancy level is expected to go up to around 6%, from a historic low of 2.9% this quarter. By the end of 2023, Vancouver is also likely to reach 6%, from a record 2% this quarter.

“A lot of the existing landlords that are going to be suffering with higher vacancy in their existing stock,” van Dijk explained. “They’re the ones that are building.”

 

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