The Avison Young Greater Toronto Market Fundamentals Q2 2024 report has been released. It indicates that the GTA office market continues to experience significant shifts in Q2 2024.
Availability and Construction
The overall availability rate of office space has climbed to 20.2%, marking an increase from 19.5% in Q1 2024. At the same time, the market has seen an influx in sublet space, now at 8 million ft2, an increase of 419,000 ft2 from the previous quarter.
229 buildings in the GTA now offer more than 50,000 ft2 of space, a slight rise from 226 buildings in Q1. The ongoing construction of office spaces stands at 3.2 million ft2, equivalent to 2% of the existing inventory. This sustained development underscores the region’s robust construction pipeline, although it also suggests a cautious approach given the rising availability rates.
Vacancy Trends
Vacancy rates have also risen, reaching 14% by the end of Q2, up 30 basis points (bps) from the previous quarter and 130 bps year-over-year. This increase is not uniform across the GTA. While Midtown, Toronto East, and Toronto North experienced declines in vacancy rates (-70 bps, -20 bps, and -40 bps, respectively), Downtown and Toronto West saw increases (+70 bps and +20 bps, respectively), showing varying levels of demand and occupancy across different submarkets.
Although rising availability and vacancy rates suggest a tenant-favourable market, the demand for premium Trophy-class buildings remains strong, driving up rental rates in prime locations.
Rental Rates
The average asking net rental rate across the GTA rose to $27.30 per square foot (psf) by the end of Q2. However, this increase was predominantly driven by high-demand Trophy-class buildings in Downtown, where rates soared to $52.60 psf. This surge pushed the overall average asking rate in Downtown to $36.60 psf. On the other hand, class C buildings across the GTA saw a decline in rates, dropping by $0.40 to $22.60 psf.
Key Markets
In Downtown Toronto, the availability rate rose by 90 bps quarter-over-quarter to 20%, with vacancy also climbing by 70 bps to 15%. Net absorption turned negative, with a decrease of 337,500 ft2 in occupied space. The completion of two new buildings, 2 Queen St. W. and Queen Richmond Centre West Phase 2, added to the available inventory, although the latter was fully pre-leased.
Midtown Toronto presented a different picture. The availability rate increased by 150 bps to 24.1%, but vacancy declined by 70 bps quarter-over-quarter to 15.1%. Positive net absorption was particularly notable in the Bloor and Eglinton nodes, indicating a healthier demand in these areas.
Proposal for New Policies on Office Space Replacement
A significant development in Q2 was the City of Toronto’s Planning and Housing Committee’s proposal for new policies on office space replacement. If the city relaxes its existing policy that mandates the replacement of office space in redevelopment projects, this could lead to a reduction in the overall office inventory. Older, smaller, or obsolete buildings might be demolished without a requirement for replacement office space, potentially altering the market dynamics significantly.
For more details, review the complete Avison Young Greater Toronto Market Fundamentals Q2 2024 report.
