Office vacancy rate continues to climb in Toronto

The office vacancy rate in Downtown Toronto continued to rise, climbing 40 basis points quarter-over-quarter (QoQ) to reach 14.2% in the Q2 2023, according to a report from commercial real estate services firm JLL.

The national office vacancy rate rose to 18.1% in Q2, according to a similar report from CBRE.

The Canadian office market is struggling with a combination of remote work trends, right-sizing, tech sector weakness, interest rate hikes, and recession threat.

Prior to the pandemic, Toronto’s downtown vacancy rate hovered at approximately 2%.

JLL pointed to some promising signs, including significant renewals from the legal sector in Q2. McCarthy Tétrault recently renewed for ±220,000 square feet, while US-based law firm Mintz leased ±24,000 square feet for its first international office. Miller Thomson downsized to ±88,000 square feet as it builds out a new office that aligns with modern utilization trends.

Although hybrid work models remain prevalent, office attendance in Toronto has increased every month since March 2022, reaching 51% of pre-Covid occupancy in June 2023, according to Strategic Regional Research Alliance.

Sublease availability in Downtown Toronto reached a new high of 4.85 million square feet, up 3% in Q2. The tech sector, which has seen leaner times this year after a pandemic boom, accounts for the majority of sublease supply.

JLL expects a further decrease in net effective rent (NER), especially as Downtown Toronto had its first dip in average net asking rate since Q2 2022.

As for the other parts of Toronto, GTA West saw its office vacancy rate increase 20 basis points to 19.5% in Q2, while GTA North and East’s vacancy rate increased 100 basis points to 16.4%.