Toronto Office Market Report
Despite Downtown Toronto office vacancy hitting a 24-year historic high of 14.6% at mid-2024, sublease vacancy in class A/B has been tightening since late 2023. Downtown South and portions of the Financial Core appear to be benefitting from proximity to Union Station as tenants seem keen to ‘anchor’ close to the city’s key public transit hub. A sizeable sudden increase in negative absorption in second-quarter 2024 concentrated in Downtown North and the Financial Core may be related to the area’s ongoing traffic congestion. Second-quarter 2024 was the weakest quarter in the past decade in terms of total square footage leased downtown, which does not bode well for absorption in the back half of 2024. Office leasing activity during the first half of 2024 was historically strong in the Financial Core, but after a pause this past spring, tenants’ return to office plans and ongoing flight to quality appear to be picking up steam for fall 2024. Most built-out spaces and full-floor opportunities, particularly in well-located class A premises in Downtown South and the Financial Core, have been leased up, which has tenants considering space in warm shell or bare shell conditions. Landlord incentives for class B space remain in play as the delta between class A and B rents continues to widen due to rental rate erosion in less desirable class B buildings and upward pressure on class A rents due to tenant demand. Ongoing heightened vacancy in Downtown Toronto is the result of three influences: i) new supply timing, ii) the office real estate cycle and iii) structural changes in how tenants use office space due to technology. COVID-19 magnified all these factors. Toronto appeared to be trailing other Canadian cities regarding the percentage of downtown employers that mandated a return to office of at least 3 days+ per week, which was notably lower than the percentage of employers in both B.C. and Alberta.
Download Toronto Office Market Report 2Q24Toronto Industrial Market Report
GTA industrial vacancy rose to 2.3% at mid-2024, which represented the most vacancy recorded in the GTA since late 2015. Regional vacancy had been less than 2% from mid-2017 through 2023. Despite a strong start to the year, leasing volume in GTA’s industrial market was muted through first-half 2024 with transactions consisting substantially of renewals. Sublease space availability spiked to its highest level in eight years at mid-2024 as more tenants continued to right-size their requirements post-COVID and returned excess space. While new deals tended to be fewer and smaller on average, those that occurred often involved tenants securing more suitable space in terms of size/location as options improved. Halton had the highest industrial vacancy rate in the GTA at 4.9%, followed by Peel (2.7%) and Durham (2.3%). Toronto (1.4%) was the tightest submarket followed by York (1.5%). Even after record amounts of new supply was delivered in 2023, more than 13.1 msf remained under construction in the GTA at mid-2024 with preleased rates at less than 25% in four of five submarkets. Estimated asking rates for industrial space peaked at mid-2023 and has been in decline since, slipping 6.5% overall with rents in Peel and Halton declining the most in the past 12 months. Peel led the GTA market in terms of sublease space availability at mid-2024, spiking to almost 3.2 msf from slightly more than 500,000 sf just 12 months earlier. After a substantial run up in annual GTA industrial sales dollar volume starting in 2021 and peaking at more than $10 billion in 2023, sale proceeds returned to more historic levels at mid-2024.
Download Toronto Industrial Market Report 2Q24