Looking for office space in Toronto? You’re in luck, because there’s a whole lot of it waiting for new tenants, according to commercial real estate giant Avison-Young. Toronto office space available for lease surged into Q2 2024, as vacancies pile up and more companies offload surplus space. A fifth of the market is now available for lease, though there’s just one odd hurdle—prices are at a new record high.
A Fifth of Toronto Office Space Is Available To Lease
Greater Toronto office space continues to suffer from a rut. Office space available for lease climbed 0.7 points to 20.2% in Q2 2024. That’s 1 in 5 sqft of office space currently up for lease-a big shift from pre-2020, when office space was rapidly becoming scarce.
Breaking it down, total availability is split into two segments, vacancy and sublet. Vacant space climbed at nearly double the average rate, rising 1.3 points to represent 14% of office space across the GTA. The remaining 4.2% of availability is sublet space, where a tenant is looking to lease part or all of their current lease.
Toronto Office Space Sitting Vacant Hits A New Record
Total availability, vacancy, and absorption trends for Greater Toronto office space.
Source: Avison Young.
Both downtown and the ‘burbs have similar availability, but very different compositions. A fifth (20%) of downtown office space is available for lease, with 15 points vacant. In contrast, a similar 19.8% of suburban office space is available for lease, but only 12.7 points were vacant. The remainder of both are sublease availability, with the suburbs beating the city by 2.1 points.
Toronto Office Demand Is Stronger In North & West of The City
The share of Greater Toronto office space available to rent by region across Greater Toronto.
Source: Avison Young.
Toronto Office Space Prices Continue To Rise Despite Vacancy
Greater Toronto office space may have a demand problem, but that has little impact on price. The average net asking price per sqft hit records for virtually all classes—Trophy ($52.60), Class A ($27.30), and Class B ($24.20). That’s not the way supply and demand traditionally works, but slanted incentives might be playing a role.
Greater Toronto Office Rents Are Hitting New Highs
The net asking rent per square foot for office space across Greater Toronto.
Source: Avison Young.
There’s quite a few reasons to hold higher vacancy rates, including just waiting out a “temporary” downturn. Some landlords prefer not to lower the cost per sqft, instead offering incentives like a month or more free. Others simply just don’t want to provide fuel for existing tenants to negotiate lower rates.
At the same time, there’s incentives to keep the units vacant. The City of Toronto is currently studying whether or not to allow the conversion of vacant and underused office space into housing. It would be a permanent loss for the economy, but with incentives such as property tax relief and subsidized capital, it’s a gamble that can yield a signficant payoff.
The reason for higher vacancies and prices are ultimately individual to each building. One thing is for sure though—Toronto’s office market is undergoing a big transformation, and it’s unclear if this will be permanent. Workers are getting used to not commuting, and companies are getting used to the savings of not having to maintain such large office spaces.
A question worth considering—if a company can maintain remote workers, what stops them from seeking labor in more cost effective markets? The trend of sizing down office space may be temporary, or the potential amplification of the shift to remote and artificial intelligence outsourcing.
