Toronto’s downtown office vacancy hits record with more supply

THE vacancy rate for downtown Toronto office buildings reached a record high at the end of last year as a flood of largely empty space from newly completed projects hit the market.

The downtown office vacancy rate in Canada’s financial capital rose to 17.4 per cent as nearly 625,000 square feet of new space came to market during the fourth quarter, according to data released on Tuesday (Jan 9) by brokerage CBRE Group. 

The poor performance of the Toronto market helped push Canada’s national downtown vacancy rate to its own record last quarter, hitting 19.4 per cent, the data show.

Toronto was home to one of North America’s biggest office building booms before the Covid-19 pandemic ushered in a major shift toward remote work that may weigh on demand over the long term. Because office towers take many years to construct, Toronto’s still working through office projects that began before the pandemic. 

With the city accounting for nearly half of all new office construction nationwide, Canada’s net-absorption rate, or the pace that office space gets leased when it becomes available, would have been positive without the impact from Toronto’s new supply, the data show. Instead, that rate was negative in the period.

Developers have started to respond to the drop in demand with CBRE data showing that, across Canada, no meaningful projects began construction last quarter, and the pipeline of those already underway is at a six-year low. 

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But office owners are still grappling with the buildings that already exist, with many looking to convert those properties to other uses such as housing. Last year, 2.5 million square feet of office space across Canada was re-purposed, CBRE data show. That still only amounts to 0.5 per cent of total inventory, the data show. 

Tenants have largely favoured newer office buildings with more amenities, meaning most of the converted properties are often older and were completed in 1972 on average, the CBRE report said. BLOOMBERG