- What CBRE paints a steady picture of office leasing in the second quarter
- Why Vacancy rate remained unchanged, despite negative absorption
- What next Occupancy expected to rise after major return-to-office announcements
Return-to-office momentum balanced out economic uncertainty in the second quarter, keeping Toronto’s office market even-keeled throughout the spring.
The vacancy rate downtown remained at 18.5% in Q2, CBRE said in a report released this morning, despite nearly 71,000 sq ft of negative net absorption.
After two quarters of growth, the return to negative absorption was attributed to the insurance sector returning several large blocks of space to the market. Factoring in suburban markets, total quarterly net absorption for the city stood at negative 206,000 sq ft. Despite the drop, Toronto’s overall vacancy rate rose just 10 bps to 19.8%.
Class-A downtown properties, which continue to attract the most attention from users, also saw vacancy rates freeze, at 16.2%. That was even as average net rents ticked up to $36.04/sq ft.
“We’re steadily recovering, but vacancy remains around that 18% range. We’re going to continue to see flight to quality, with those AAA, trophy assets continuing to outperform the market,” Molly Westbrook, executive vice president and managing director of CBRE’s Toronto Downtown office, told Green Street News.
“The vacancy level in those assets has dropped to around 5%. Vacancies have come down significantly, and I think that’s due to particularly strong demand from the financial sector. Overall, we’re feeling pretty bullish as we hit the latter part of the year.”
Several large firms, including BMO and Scotiabank, announced official return-to-office mandates in Q2, which CBRE expects will boost occupancy rates in the coming quarters. There is already downward pressure on some segments of the market, with sublet space as a percentage of vacant space dropping 310 bps to 16.3% downtown and falling 130 bps to 13.7% in the suburbs. Approximately 2.9m sq ft of space is available for sublease downtown, down from 3.4m in Q1.
“We saw occupancy levels up in the month of June, and we’ve seen several large users mandating return to office policies which really will help from an overall vacancy perspective,” Westbrook said.
“Quarter-over-quarter we have seen steady momentum. We’re kind of sitting flat right now, but we’re going to see trophy assets, higher quality assets continue to outperform. The demand is there, and vacancy is going to start decreasing.”
Approximately 53,000 sq ft of space came online downtown in the second quarter. Fewer than 2m sq ft remains under construction, with CIBC Square 2 accounting for the vast majority. More than 62% of forthcoming office space is preleased.
Nationally, no new projects have commenced in a year, and construction hasn’t started on anything over 100,000 sq ft in two years. Market movement has been “minimal” over the last four quarters, CBRE said, signaling that Canada’s office market has “reached a plateau.”
The national office vacancy rate was unchanged from the first quarter at 18.7%, despite over 157,000 sq ft of negative net absorption. Sublease space declined for an eighth consecutive quarter to 12.6m sq ft. The figure is down 16.2% from a year ago, and 26.1% from the peak of 16.7m sq ft seen in the second quarter of 2023. Sublet space as a percentage of vacant space fell 100 bps to 13.7%.
In the coming quarters, falling construction levels, alongside declining sublets, will help ease pressure in most markets, while conversions will aid in a select few. Included in that are Calgary and Ottawa, where government incentives are in place to spur redevelopment.
UPDATE: This article was revised at 3:40 p.m. on July 2, 2025, to include commentary from CBRE.
