The perfect storm continues.A new study by commercial real estate firm CBRE found that the vacancy rate for downtown Toronto office space hit 15.8 per cent in the second quarter of 2023, the highest it’s been since 1996. That’s up from just two per cent in March 2020, when the pandemic was declared. The work-from-home trend that gathered momentum during the pandemic, fears of an economic slowdown and layoffs in the tech sector have been a triple whammy for office space, said Michael Case, managing director of CBRE’s downtown Toronto office.“It’s a bit of a perfect storm right now.”The downtown office vacancy rose half a point from 15.3 per cent in the first quarter, as an extra 502,545 square feet of office space came available. Case expects the vacancy rate to rise to 18 per cent by the end of 2023.“This will get worse before it gets better,” Case said.Among the reasons? Many companies are only partway through long-term leases, and still haven’t had to sign new ones since the pandemic accelerated the trend toward working from home, Case said.While workers are starting to come back, the days of employees being expected to work in the office five days a week are likely gone for good, said Case. That means companies are needing to rethink how much space they actually need.“The hybrid work model is here to stay,” Case said.Over the last year, as the tech industry has been hit by a wave of layoffs, and the collapse of Silicon Valley Bank, Toronto’s office-space market has also seen a big effect, Case added.“When the vacancy rate was at two per cent, a lot of that demand was coming from tech companies,” Case said.Across Canada, the overall office vacancy rate hit 18.1 per cent in the second quarter, the highest it’s been since 1994. The hardest hit major city is Calgary, where office vacancy is at a whopping 29.2 per cent. In May, a report prepared for the Toronto chapter of the National Association for Industrial and Office Parks found that the glut of office space could continue for the better part of another two decades. Economist Peter Norman, who prepared the report for the NAIOP, warned vacancy rates in the GTA could spike as high as 46 per cent in the years ahead.While acknowledging that things will get worse before they get better, CBRE’s Case said that some kinds of office space are better positioned to survive the downturn. Top quality buildings — particularly newer ones — in high-profile, desirable locations are in better shape than older ones on the periphery, said Case. As companies are deciding they need less space, they’re opting for better locations, in offices that are “built out,” or move-in ready.“There’s been a real flight to quality. They want to put their employees in the best buildings, with the best amenities in the best locations,” said Case. “A lot of our clients are looking for space that’s close to Union Station, so everyone can get there easily.”“Suburban” Toronto office space, which includes some parts of the City of Toronto not in the downtown core, has a 20.5 per cent vacancy rate.Older buildings in less desirable locations, which require some remodelling or refinishing before tenants move in, are struggling more, he added.“If you’re in a B-class building, and it’s not built-out, it’s going to be sitting vacant for quite some time,” Case said.
The perfect storm continues.
A new study by commercial real estate firm CBRE found that the vacancy rate for downtown Toronto office space hit 15.8 per cent in the second quarter of 2023, the highest it’s been since 1996. That’s up from just two per cent in March 2020, when the pandemic was declared.
The work-from-home trend that gathered momentum during the pandemic, fears of an economic slowdown and layoffs in the tech sector have been a triple whammy for office space, said Michael Case, managing director of CBRE’s downtown Toronto office.
“It’s a bit of a perfect storm right now.”
The downtown office vacancy rose half a point from 15.3 per cent in the first quarter, as an extra 502,545 square feet of office space came available. Case expects the vacancy rate to rise to 18 per cent by the end of 2023.
“This will get worse before it gets better,” Case said.
Among the reasons? Many companies are only partway through long-term leases, and still haven’t had to sign new ones since the pandemic accelerated the trend toward working from home, Case said.
While workers are starting to come back, the days of employees being expected to work in the office five days a week are likely gone for good, said Case. That means companies are needing to rethink how much space they actually need.
“The hybrid work model is here to stay,” Case said.
Over the last year, as the tech industry has been hit by a wave of layoffs, and the collapse of Silicon Valley Bank, Toronto’s office-space market has also seen a big effect, Case added.
“When the vacancy rate was at two per cent, a lot of that demand was coming from tech companies,” Case said.
Across Canada, the overall office vacancy rate hit 18.1 per cent in the second quarter, the highest it’s been since 1994. The hardest hit major city is Calgary, where office vacancy is at a whopping 29.2 per cent.
In May, a report prepared for the Toronto chapter of the National Association for Industrial and Office Parks found that the glut of office space could continue for the better part of another two decades. Economist Peter Norman, who prepared the report for the NAIOP, warned vacancy rates in the GTA could spike as high as 46 per cent in the years ahead.
While acknowledging that things will get worse before they get better, CBRE’s Case said that some kinds of office space are better positioned to survive the downturn. Top quality buildings — particularly newer ones — in high-profile, desirable locations are in better shape than older ones on the periphery, said Case. As companies are deciding they need less space, they’re opting for better locations, in offices that are “built out,” or move-in ready.
“There’s been a real flight to quality. They want to put their employees in the best buildings, with the best amenities in the best locations,” said Case. “A lot of our clients are looking for space that’s close to Union Station, so everyone can get there easily.”
“Suburban” Toronto office space, which includes some parts of the City of Toronto not in the downtown core, has a 20.5 per cent vacancy rate.
Older buildings in less desirable locations, which require some remodelling or refinishing before tenants move in, are struggling more, he added.
“If you’re in a B-class building, and it’s not built-out, it’s going to be sitting vacant for quite some time,” Case said.
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