With the Great Return stalling, businesses across the Greater Toronto Area are reassessing their office requirements. As companies strive for future flexibility, the amount of available sublease space has swelled.
According to a new office market report from Avison Young, 566K sq. ft of sublease space hit the market in Q4 2022, bringing the total amount of available sublease space to 7.7M sq. ft. The figure is not only an annual increase of 1.6M sq. ft, but surpasses the previous peak of 7.4M sq. ft set in April 2021 when Ontario was under a stay-at-home order due to the pandemic.
The trend carried into the office towers of downtown Toronto, too. Available sublet space in the city's core increased by 627K sq. ft in Q4 to an all-time high of 4M sq. ft. Year-over-year, available sublet space increased by 1.4M sq. ft.
Avison Young cautioned that the figure would likely rise further in Q1 2023, as Shopify's 348K-sq.-ft sublease offering at The Well was not factored into the Q4 figures.
Shopify's 15-year lease at The Well began in 2022, but the e-commerce giant announced in December that it no longer planned to occupy the seven-storey space.
"Many occupiers are still assessing their office space needs in light of hybrid workplace strategies and the ongoing return-to-office process, deferring decisions when they can and hedging their bets with shorter lease terms to allow future flexibility," Avison Young said.
As of February 1, 2023, office occupancy in downtown Toronto is at 43% of pre-pandemic levels; a year ago, it was less than 10%, according to data from the Strategic Regional Research Alliance.
In downtown Toronto, availability and vacancy both registered "notable" increases in Q4, rising 140 bps and 80 bps, respectively, to 16.1% and 10%. Annually, both figures were up 250 bps.
Although absorption was positive in Q4, increasing by 108K sq. ft for a yearly total of 2.4M sq. ft, Avison Young noted this was a "lagging indicator" that could reverse course into negative territory in 2023 as newlyvcompleted inventory comes online.
GTA-wide, availability increased by 50 bps in Q4 2022, and was up 150 bps annually, reaching 16.5% at year-end. Vacancy rose 30 bps on a quarterly basis and 170 bps year over year to 10.7%.
Occupied area across the region increased by 430K sq. ft in Q4, marking the fifth straight quarter of positive absorption. While net absorption for the year sat at almost 1.9M sq. ft, as in Toronto, the marked increase in available space combined with new supply point to negative absorption in subsequent quarters.
