Most of the available downtown office space is in the Bloor hub

A difficult year for the Greater Toronto Area office market continued into the final quarter of 2023 as large organizations continued to discuss their space needs.

Downtown affordability was 18.1% in Q4, up 60 basis points (bps) from Q3 and up 200 bps year over year, according to new data from Avison Young.

At 13.1%, the city center office vacancy rate increased by 60 bps quarter-on-quarter and has increased by 310 bps since the end of 2022. Midtown also reported 13.1% vacancy, but that figure was up 40 bps quarter-over-quarter. 200 bps annual growth.

Meanwhile, the availability rate in the city center increased by 470 bps over the year and reached 19.1%, up 20 bps from Q3. Of the 3.2 million square feet of downtown office space, 57%, or 1.8 million square feet, is located in the Bloor hub. About two-thirds of them were in Class A buildings.

On paper, the data seems to show that businesses are leaving Bloor. In fact, the trend is largely the result of the two largest occupiers rethinking their needs for space, said Joe Almeida, managing director of Avison Young Ontario, STOREYS.

BMO has put 455,000 square feet of space in the Manulife Center at 55 Bloor St. on the sublease market with a term through 2035. The move is “part of the rationalization of the workplace,” Almeida said. BMO's new urban campus in the south.

WPP has shown a similar pattern of migration as it rationalizes a number of long-held positions in quality towers and heads for a waterfront campus-style building.

Together, the two movements account for a quarter of the available space at the Bloor node.

“Bloor benefits from excellent transit with subway lines and it has incredible amenities, both of which are critical to residents and their workforce,” Almeida said of tenants' continued flight to quality. “So even though it's a little difficult right now, Bloor will always benefit from these opportunities and it will always be a strong market in the Toronto landscape.”

“I don't think there is a flight from Bloor in any way, shape or form. In my opinion, this has always been the most attractive of the Midtown markets. I see no reason why that will change in the future.”

Rather, the area is undergoing a “natural evolution” and is not lacking in new transactions, indeed the new 30,000 square foot lease at 2 Bloor Street West is a notable example. This shift is further evidenced by the region's retail landscape – while stores such as Zara and H&M are closing in, wellness spots such as Altea Active and Jaybird are moving in.

Going forward, Almeida expects vacancy availability and vacancy rates to remain stable as tenants continue to rationalize their space needs and construction slows.

In 2023, only 11 new office buildings were completed across the GTA, and only 5.6 million square feet of space, or 3% of existing inventory, is under construction. A lack of new supply to the city center after mid-2025 could prompt tenants, particularly those looking for high-quality Class A buildings, to bargain sooner.

And, for the first time in 2023, net absorption was positive in the downtown and downtown office markets in Q4, signaling to Almeida that “things will continue to be broadly positive” in 2024.