Nearly 20 per cent of Toronto office space vacant: CBRE

New statistics from commercial real estate firm CBRE say 18 per cent of office space in downtown Toronto was vacant in the first quarter of the year, part of a trend of gradual increases in vacancies over the past few years.

Before the pandemic, that number was closer to two percent.

Karen Chapple, director of the University of Toronto's School of Cities, said she's seen this happen as commercial office leases continue to expire amid declining tenant demand.

He explained that office leases typically last 10 to 15 years, and about 10 percent of existing leases expire each year, and now they're starting to see those cumulative effects.

“So you're going to gradually see people finalize their decision about telecommuting and how much hybrid work they're going to allow and reduce their footprint … it's a very gradual process,” Chapple said.

Chapple adds that Toronto has moved away from economic diversity.

“That's why (Toronto) is so vulnerable to the pandemic and the rise of hybrid and remote work because of its disproportionate share of workers in the financial sector, real estate sector and technology sector,” Chapple said. “So, these are all sexual sectors. Everyone wants them, but they make you a little more resistant. So I think we're seeing a bit of an imbalance in the economy.”

There are also businesses outside of Toronto that choose to move to areas where the city has the space to compete. “There is a consensus that there is a bit of a flight to quality in the real estate market,” Chapple said.

He says there are still many commercial tenants who appreciate being downtown, and the flight to quality may not work against downtown Toronto.

“Top-quality space in downtown Toronto leases faster than older buildings. So mixed in downtown Toronto, you know it's got some really recent buildings, but there's a kind of building that can't compete with what you see in Vaughan or Mississauga,” Chapple explained.

Commute times and transportation infrastructure have also become a liability for downtown living for those who want to live outside the center.

“Route time has risen significantly every year as one of the top three factors in all our models. Therefore, it remains a very powerful factor. Toronto has one of the longest, if not the longest, boardwalks in North America. He has a transit car that is still a bit behind. It has terrible traffic problems,” Chapple added. “All of this affects workers and makes them say, 'OK, I'll stay home.'”

While the downtown vacancy rate is lower than in the past, it is in line with the national average of about 19 percent, while the suburban vacancy rate is 20 percent.