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.

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.

“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.”