The Great Office Exodus: Toronto's Shifting Real Estate Landscape
Adrian C. Spitters FCSI®, CFP®, CEA® President, Author, Private Wealth Advisor
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The Flight From Downtown Continues Unabated
The flight from Toronto office space was supposed to be temporary, but the latest data suggests otherwise. According to global commercial real estate giant Avison Young, Greater Toronto offices hit a new record vacancy rate in Q1 2024, with nearly one in seven square feet of office space sitting vacant.
The numbers paint a grim picture: the vacancy rate climbed 40 basis points (bps) to 13.7% in Q1 2024, a staggering 150 bps higher than last year. And it's not just a suburban issue – Downtown Toronto has been hit even harder, with the vacancy rate surging 90 bps to 14.3% in Q1 2024, overrepresented compared to the region. Since last year, the downtown vacancy rate has skyrocketed by a whopping 170 bps as the city's core continues to hollow out.
More Space Available Than Meets the Eye
But the story doesn't end there. Avison Young's data reveals that Greater Toronto has even more office space available for rent than the vacancy rate suggests. The availability rate, which combines vacant space with leases looking to end or sublease, climbed 20 bps to a staggering 19.5% in Q1 2024. That's nearly one in five square feet of office space on the market, a 100 bps increase from last year.
Downtown Toronto is once again leading the charge, with the availability rate rising 90 bps to 19.1% in Q1 2024, up a whopping 170 bps from last year. Despite this glut of available space, prices have remained relatively stable, a concerning sign for landlords and investors.
A Shifting Landscape
Avison Young attributes this shift in office space demand to a combination of factors, including changing workplace preferences and the construction of new office spaces contributing to the total availability. While there are some signs of firming, with average rents showing stable growth for Class A and Class B office spaces, trophy office spaces haven't been so lucky, remaining roughly at the same cost as in 2020 despite increased operating expenses.
The path forward isn't crystal clear, as the agency warns that some large tenants will take possession of newly completed spaces in the next few quarters, potentially exacerbating the situation if their former premises remain vacant and new tenants don't materialize quickly.
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