- What The office vacancy rate in downtown Toronto was 13.7% in Q2, but just 8.7% in suburban markets east of the city
- Why The “fight” to get to downtown has made suburban offices more appealing, Adam Jacobs, national head of research at Colliers, told Green Street News
- What next The vacancy rate downtown is expected to continue to rise over the next two quarters
The chaos of commuting downtown is shifting office dynamics in the Greater Toronto Area, with suburban workspaces rising in popularity.
In downtown Toronto, the office vacancy rate in Q2 2024 was 13.7%, according to a recent report from Colliers. In Midtown, it was 16.4%.
Meanwhile, the GTA North, which includes Vaughan and Richmond Hill, posted a Q2 vacancy rate of 10.4%. In the GTA East – comprised of Scarborough Town Centre and Pickering-Oshawa – it was 8.7%.
“The suburbs are a little more balanced right now because it’s easier to get people into an office when it’s a 10- or 15-minute drive from their house and there’s free parking,” Adam Jacobs, national head of research at Colliers, told Green Street News.
“There is a certain appeal to not having to fight your way downtown — the subway is closed, the GO Train is delayed, there’s traffic and construction,” he added. “For some occupiers, it’s better to lease the office in Pickering because it’s a compromise and it’s easier for the employee to get to. That’s one challenge that’s lurking in the whole of downtown.”
That challenge was particularly pronounced this week as record-setting rainfall flooded the city: Offices lost power, Union Station shut down, and drivers were stranded on the Don Valley Parkway.
But, as Jacobs noted, issues such as traffic congestion and infrastructure faults are beyond the control of an individual landlord or building owner. There are myriad ways to entice workers back to the office, but even a highly amenitized building loses its appeal if no one can get to it.
As such, the vacancy rate for downtown Class-A office space — defined by Colliers as being on the periphery of the core and without adequate access to transit — hit 16.4% in Q2. But, for AAA assets, it was 6.4%.
“A Class is being left behind a little bit because it’s not the bargain option like you’d get for B and C Class, but it’s also not offering the most in terms of transit access, lunch options or nice views,” Jacobs said.
The weighted average asking net rent for downtown Class-C buildings was approximately $25/sq ft in Q2. It was roughly $37/sq ft for downtown Class-A buildings and about $48/sq ft for AAA assets.
“Those AAA buildings, they’re all PATH-connected. They’re right downtown next to Union Station,” Jacobs said. “So, all the challenges of trying to get people back to the office with the commute being so long, AAA is partly the path to making that happen. There are no excuses. You can get there. You can get to work.”
Many of those AAA buildings, such as CIBC Square and 160 Front Street West, are drawing tenants from other downtown office properties, further bumping up the vacancy rate there. More than 563,000 sq ft of new supply came online in Q2, and another 2.9m sq ft is under construction. That includes the 460,000 sq ft EQ Bank Tower and the 1.4m sq ft CIBC Square II, both slated for completion by yearend. As a result, Jacobs expects the vacancy rate downtown will continue to edge up over the next two quarters.
“We’ve had a perfect storm of remote work and a crazy development boom. It’s not surprising that the vacancy rate is still rising. What is surprising is how long it’s gone on,” he said. “But the construction cycle is winding down and some sectors are reversing course on remote work. And long term, 5 million more people are coming to Canada.
“We often talk about population growth being this great boon to other parts of commercial real estate, but some of these newcomers are going to work in an office and commute downtown. You can look into the future and see a situation where if we’re not building any more offices and there are millions more people here, then the existing offices are going to gradually fill up. You can see, or squint, a way to a better market.”
