What had been a challenging year for the Greater Toronto Area office market persisted into the final quarter of 2023, as large organizations continued to mull over their space needs.
According to new data from Avison Young, the availability rate in the downtown core hit 18.1% in Q4, a 60 basis point (bps) increase from Q3 and an annual rise of 200 bps.
At 13.1%, the downtown office vacancy rate edged up 60 bps on a quarterly basis, and increased 310 bps from the end of 2022. Midtown, too, reported a 13.1% vacancy rate, but the figure marked a quarterly bump of 40 bps and an annual increase of 200 bps.
Meanwhile, the availability rate in midtown soared 470 bps year over year, and climbed 20 bps from Q3, to 19.1%. Of the 3.2 million sq. ft of office space available in midtown, 57%, or 1.8 million sq. ft was located in the Bloor node. Of that, nearly two-thirds was in class A buildings.
On paper, the data seems to indicate businesses are backing out of Bloor. In reality, though, the trend is largely the result of two large occupiers continuing to rethink their space needs, Joe Almeida, Managing Director Ontario at Avison Young, told STOREYS.
BMO has put 455,000 sq. ft of space in the Manulife Centre, at 55 Bloor Street West, on the sublease market with a term until 2035. The move is “part of a larger workplace rationalization,” Almeida said, which follows the opening of BMO’s new urban campus further south.
WPP displayed a similar migration pattern when it rationalized a number of long-held locations in quality towers and headed to a campus-style building near the waterfront.
Together, the two moves account for over a quarter of the available space in the Bloor node.
“Bloor benefits from great transit with the subway lines and it’s got great amenities, both of which are very, very important for occupiers and their workforces,” Almeida said of tenants' continued flight to quality. “So although it's a little bit challenging right now, Bloor is always going to benefit from those features and it's always going to be a strong market within the Toronto landscape.”
“I don't think there's any flight from Bloor in any way, shape, or form. I think it's always been the most attractive of the Midtown markets. I don't see any reason why that's going to change in the future.”
Rather, the area is going through a “natural evolution” and is hardly devoid of new transactions, Indeed’s new 30,000-sq.-ft lease at 2 Bloor Street West serving as a significant example. And the change is further evidenced by the area’s retail landscape — while shops like Zara and H&M have packed up, wellness spaces like Altea Active and Jaybird are moving in.
As far as what the future holds, Almeida expects the availability and vacancy rates will steady out as tenants continue to rationalize their space needs and construction slows.
Only 11 new office buildings were completed across the GTA in 2023, and just 5.6 million sq. ft of space, or 3% of existing inventory, is under construction. A lack of new deliveries destined for downtown after mid-2025 could motivate tenants to transact sooner, especially those in search of high-quality class A buildings.
And, for the first time in 2023, net absorption was positive in both the downtown and midtown office markets in Q4, signalling to Almeida that “things are going to continue in a generally positive manner” in 2024.
