TORONTO-Office vacancy is still increasing in the greaterToronto area, climbing to 11.2% in the second quarter, according toa new report by Avison Young. However, there’s about three millionsquare feet of demand in the area, said the company, and the newbuildings are getting full.

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Even Downtown Toronto saw an increase in office vacancy, hitting10.3% in Q2, a level not seen in five years, says BillArgeropoulos, SVP and director of research for the company. Whathasn’t helped the occupancy rate is the five new office towers,including the Bay-Adelaide Centre West, Telus Tower, RBC Centre,Maple Leave Square and 18 York St. All have been successful atpulling tenants away from existing buildings, and are almost 80%leased.

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“The big challenge is the blocks of space left behind. Tenantswill now also be able to trade up from lesser space to takeadvantage of depressed rental rates, they want new LEED certified,efficient buildings,” Argeropoulos tells GlobeSt.com. “Officeleasing here has definitely changed from a year ago, though.Business confidence has improved. It’s not just leases 18 monthsand out rolling, these are tenants looking ahead two-to-three yearsand taking advantage of the marketplace.”

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He says banks are the largest tenants looking for space, thoughthere’s some difficulty, and possible confusion to customers, inthese companies switching buildings. Also, there banks are lookingto downsize. “There’s one bank here that occupies about one millionsquare feet, but when they move they may end up leaving half ofthat behind. Hopefully they can keep some of the space and split itbetween two locations.”

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Regardless, Argeropoulos says this past quarter is still a farcry from last year, when there was only about two million squarefeet of demand in the area. “We’re definitely going to see a slowprogression for the last half of the year. It will be interestingto see the renewals or relocations that follow in the second halfof 2010,” he says.

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