Bidding wars are nothing new in Toronto real estate. But lately they’ve been seen around some very unfamiliar places – in the commercial marketplace.

The new trend comes from the fact that office properties within the “B Class” are very low in supply on the market right now. These classes designate how desirable a property is, depending on things such as location and the best quality; “A Class” is considered the best. but the “B Class,” or second best properties, have been almost nowhere to be found for the past two years.

The end of last month marked the seventh quarter in a row that has seen a vacancy rate of below 4 per cent within these B Class properties. This most recent quarter, it was down to just 3.7 per cent. And that’s caused many potential buyers to get involved in bidding wars that just aren’t typically seen in the commercial market.

Michael Caplice, senior managing director of office leasing at Cushman & Wakefield says that this is a trend that’s going to continue.

“For the first time in many years we’ve seen tenants bidding against tenants for space – highlighting the strength of the landlord’s market,” says Mr. Caplice. “This is highly unusual in downtown Toronto.”

The problem, he says, is that business owners are starting to feel better about the economy, and that gives them hopes of expanding and growing their business. But there’s few vacancies in core areas, and those spaces that are available have very high prices attached to them. It’s because of this, he says, that we’re not likely going to see an end to commercial bidding wars in the Toronto area any time soon.

He says that in addition to the lack of vacancies, this shortage also puts pressure on another market – the rental market.

“In this cycle we only expect things to get more difficult for tenants as there will be upward pressure on rental rates with no new supply projected to open up in the brick and beam market,” he says.

But, he also says that this type of Toronto congestion should clear up within the next couple of years. As more new office towers are expected to go up within those years, it will entice those currently in Class B properties to move onto newer, Class A properties. And finally those looking for quality, but not over-the-top space will be able to find it.


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