Toronto's downtown office vacancy rate hit 12 per cent in the second quarter, up from 11.6 per cent in the first quarter to continue an upward trend, according to Avison Young.
That rate is far higher than the 2.1 per cent the market was at in the first quarter of 2020, the real estate advisory firm said, before the COVID-19 pandemic led to a surge in vacancies.
Along with about 9.9 million square feet of vacant office space, available sublet space is up about 67 per cent from last year to 4.5 million square feet to bring the total availability in the core to 17.5 per cent, said Avison Young in its latest report on office vacancies in Toronto.
The greater Toronto office market had a vacancy rate of 13.6 per cent, while adding in available sublet space, which was up 42 per cent from last year, brings total availability to 18.1 per cent.
"Workplace strategies continue to evolve, and even companies that have not downsized may now require less space than traditional assumptions would indicate," the Avison Young report said.
The company said it expects availability and vacancy to continue rising in the short term.
With demand for traditional office space still below historical levels, Avison Young said some developers have repurposed some new office construction projects to cater instead to lab space for the life sciences sector.
"Because most existing office buildings do not have the ceiling height, separate loading areas or infrastructure systems required to accommodate conversion to a life sciences use, developers who had new projects in the pipeline have an opportunity to make the switch before or even during the construction process," the report said.
In JLL's latest reports on commercial space, the real estate services firm said the pattern of massive rental increases on industrial and warehouse spaces seen during the pandemic is losing momentum amid higher vacancies.
Softening market demand has significantly slowed the progress of new office space supply, JLL said. Higher construction costs and interest in office-to-residential conversions have also affected the planning and pre-construction stages of a number of proposed commercial and mixed-use projects, the firm added, projecting that uncertainty will keep the supply pipeline thin beyond 2025.
This report by The Canadian Press was first published July 25, 2023.
The Canadian Press
