TORONTO-In contrast to the short backward slide of the USmarket, Toronto’s office space actually saw a drop in vacancy inthe third quarter 2010 to less than 10%, which hasn’t been seensince early 2009. The lease-up of four new office towers to about10% vacancy helped the market, though Avison & Young expertssay the focus is now on large blocks available in former bankbuildings downtown.

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Bill Argeropoulos, VP and director of Canada research for thecompany, says the movement seen but not proven in the secondquarter finally came to roost in the third, with close to 2.5million square feet of transactions, 70% being renewals andexpansions, and 30% relocations. However, he tells GlobeSt.com thatthe 9.7% vacancy isn’t too wonderful, as space that’s currentlyoccupied but being marketed boosts the potential vacancy to 11.6%.“It’s likely foreshadowing, the vacancy figure will probably tickup higher and peak in 2011 before it begins to retreat,” hesays.

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He says four of the five new office towers downtown are now 90%occupied, including Bay-Adelaide Centre West, Telus Tower, RBCCentre and Maple Leave Square. Only 18 York St. is still underconstruction, “and that building is largely leased, only one flooravailable, and it should be delivered in the latter half of 2011,”Argeropoulos says. There are 11 full floors available in thesedevelopments, with the largest contiguous block being 80,000 squarefeet.

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Now, it’s the older large bank buildings in the city’s financialcore that are at risk of losing tenants. “If you look at the fourtowers there, there’s more than 200,000 square feet available, aresult of tenants vacating for the new buildings or otherproperties,” Argeropoulos says. “They’re at 16% vacant, a glut inthat district that I’ve not seen in my 22 years in thebusiness.”

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These older structures include Commerce Court West, Royal TrustTower, First Canadian Place and TD Bank Center. Argeropoulos saysrenovation projects have begun for the properties, especially atthe Brookfield-owned First Canadian, where the company is in theprocess of re-skinning the 72-story, 2.4-million-square-footbuilding, now about 17% vacant.

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Similar to the US market, the Toronto trophy office market isstarting to narrow, he says. “It’s getting so that large-blockusers, and/or tenants who want a LEED-certified space, may have towait another three-to-four years. There isn’t a developer who isgoing to go into the ground on a speculative basis unless there’s awilling lead tenant,” he says.

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