- What Downtown Toronto’s office vacancy rate rose to 18.0% in the first quarter
- Why The flight to quality trend has split the market, leading to vacancy rates of 6% in some A Class buildings and upwards of 25% in B Class assets
- What next The vacancy rate will continue to edge up, but not substantially as occupiers continue to right-size their space
The office vacancy rate in downtown Toronto continued to rise in Q1, hitting 18% as direct space came back to the market, CBRE said in a new report.
Much of that vacancy is focused on Class-B and Class-C buildings, as well as those on the periphery of the core as the flight to quality persists.
“There is a very clear bifurcation in the market,” Shekhar Bhardawj, CBRE’s downtown Toronto research manager, told Green Street News. “Toronto is a tale of two markets. It all depends on what building you’re looking at.”
More than a dozen triple-A office buildings tracked by CBRE have vacancy rates around 6%, while Class-B towers are registering vacancy rates upwards of 25% and older assets hover around 18%.
The vacancy rate for suburban office space was 20.6% as of Q1. Bhardawj expects vacancy in both downtown and the suburbs will keep rising in the near term as occupiers continue to right-size their space. However, he believes headwinds will taper off.
On the bright side, Q1 was the second consecutive quarter to see sublet space decline. Sublet space now accounts for 24.2% of vacant space downtown and 19.9% in suburban Toronto.
Despite approximately 800,000 sq ft of new leasing activity, including data cloud company Snowflake upsizing its lease to 52,000 sq ft from 23,000 sq ft, Toronto reported 487,000 sf of negative net absorption in Q1.
No new supply was brought to market in the first three months, but 4.3m sq ft is under construction downtown, with 56% of that pre-leased. The average Class-A net rent dropped to $35.39/sq ft, the lowest level since Q3 2021.
