Despite tariff troubles and economic uncertainty, Toronto’s office market showed signs of improvement in the first quarter.
The downtown vacancy rate slipped to 18.5% in Q1, CBRE said in a report, a 50-basis point drop from the previous quarter. The decline, while small, is the metric’s first improvement since Q1 2020.
Meanwhile, the vacancy rate in the suburbs crept up to 21.1%, a 40-bps increase, which kept Toronto’s overall vacancy rate unchanged on a quarterly basis at 19.7%.
Healthy leasing activity downtown spurred an uptick in rents, with the average asking rate rising to $35.94/sq ft for Class-A buildings. Among the coveted class, the vacancy rate fell to 16.2% as tenants continued to seek out high-quality assets.
Sublease space contracted to 3.4m sq ft – a roughly 500,000 sq ft decline from Q4 – settling at its lowest point since Q4 2022. Sublease space now represents 19.4% of vacant space in downtown Toronto.
Net absorption for the quarter was positive downtown, at 247,000 sq ft, although it was offset by 277,000 sq ft of negative net absorption in the suburbs, which kept the city’s overall net absorption rate in negative territory for a second consecutive quarter.
No new supply came online downtown in Q1, although approximately 2m sq ft of space remains under construction, 58.9% of which is preleased.
Just one asset was delivered in Toronto’s suburbs. At 5250 Yonge Street, the 120,000 sq ft office building was not preleased, and remains vacant. According to CBRE, the developer, G Group Development, is “considering all options” for the space, including non-office uses. While office conversions continue to gain popularity in other cities – namely Calgary, Ottawa and Montreal – such repositioning plays have yet to markedly take hold in Toronto.
Improvements in Toronto’s office market represent one of the “pockets of positivity” across the country, but the sector continues to be in “wait and see mode,” said CBRE Canada chair Paul Morassutti.
Nationally, the downtown vacancy rate was 19.9% in Q1, little changed from Q4’s 20.0%. Sublet space fell to 8.2m sq ft from 8.8m sq ft, while average Class-A net rents rose to $30.24/sq ft.
“It’s unclear how much renewed momentum there is and to what degree tariff-based uncertainty is affecting decision-making,” Morassutti said. “We should have a better idea in the second quarter of what the tariffs really amount to and how businesses will respond.”
