Close to 20 per cent of office space in Toronto core vacant: CBRE

While downtown Toronto's office vacancy remains slightly lower than the national average or even nearby suburbs, it's much higher than it was before the pandemic. David Zura speaks with someone who studies these trends in a two part conversation.

By David Zura

New statistics from CBRE, a commercial real estate company, say 18 per cent of office space in Toronto’s downtown care was vacant during the first quarter of the year, part of a continuing trend of gradually increasing vacant rates over the past few years.

Pre-pandemic, that number was closer to two per cent.

Karen Chapple, the Director of the School of Cities with the University of Toronto, said she saw this coming as commercial office leases continue to expire while tenant demand is down.

She explained office leases typically run 10 to 15 years, and about 10 per cent of existing leases expire every year and now, they are starting to see those cumulative effects.

“So you’re gradually seeing people finalizing their decision about remote work and about how much hybrid work they’re gonna allow and reducing their footprint … it’s a very gradual process,” said Chapple.

Chapple adds the Toronto had slipped a bit away from their economic diversity.

“That’s why [Toronto] was particularly vulnerable to the pandemic and the rise of hybrid and remote work because of its disproportionate share of workers in the financial sector and the real estate sector and the tech sector,” said Chapple. “So these are all sexy sectors. Everybody wants to have them, but it turns out they make you a little bit less resilient. So I think we’re seeing a bit of a balancing out of the economy.”

There are also business that have chosen to move outside of Toronto to areas with more space that the city has had to compete with. “There’s a consensus in the real estate market that there’s a bit of a flight to quality,” said Chapple.

She said there are still lot of commercial tenants who value being downtown and that the flight to quality might not be working against Toronto’s downtown after all.

“The highest quality space in downtown Toronto market is probably leasing up quite a bit more quickly than the older buildings. So in downtown Toronto is a mix, you know it has actually quite a few recent buildings but it does have a kind of set of buildings that are just not gonna compete with what you’ll see in Vaughan or Mississauga,” explained Chapple.

Commute times and the transportation infrastructure has also become a liability for downtown life for those want to live outside the core.

“Commute time comes up significantly as one of the top three factors in all of our models year after year. So it remains a very, very powerful factor. Toronto has some of the longest commutes in North America, if not the longest. It has transit ridership, which is still lagging a bit. It has horrific traffic congestion issues,” added Chapple. “And all this is affecting workers and, and making them say, ‘Well, I’ll just stay home.'”

While the downtown vacancy rate is low compared to the past, it is roughly in line with the nation rate which sits at about 19 per cent while the suburban vacancy rate is at 20 per cent.

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