Downtown Toronto struggles to recover as office vacancy rate continues to skyrocket

Even if bars, cafes, restaurants, retail stores and gyms are bustling enough to make it feel like Toronto's prolonged lockdown era never happened, some parts of the city are still a ghost town as a result of the pandemic — namely, our office towers.

Office vacancy rates in Canada's largest metropolis have been remarkably high for more than two years now, with the work-from-home trend becoming part of the post-COVID norm for many people, at least part-time.

New figures from commercial real estate company CBRE show how the shift away from in-person work for many sectors is not only persisting, but actually worsening, with 2023 having the lowest uptake of office space of any year since the fateful 2020.

No quick recovery in sight for Toronto's dying downtown core 😁 https://t.co/XxPQrNAIuh #Toronto #RealEstate #Office

— blogTO (@blogTO) October 9, 2023

Of all major cities in Canada, Toronto's net absorption rate — which takes into account new offices added to the market — was a shocking -2.7 million square feet, the worst of any major Canadian hub surveyed in a 2023 recap the group released on Tuesday.

In fact, the experts noted that if it weren't for T.O., "national net absorption of office space would have been positive" in the last quarter of 2023, thanks to more people getting back into their places of business in cities such as Halifax, Edmonton and even Vancouver.

Calgary, in contrast to the 6ix, saw three consecutive quarters of positive net absorption of office space last year, attributed to a new initiative by the Prairie locale to convert old offices to residences— something many are pushing for in Toronto while so many floors sit empty amid a housing crisis.

The most ridiculous scenario. On one hand there is a glut of vacant offices and buildings. On the other hand people are going homeless and sleeping in parks. Yet these provincial and municipal leaders pull down top salaries for doing nothing.

— Forest Anda (@PunkeyPye) July 4, 2023

CBRE writes that Toronto's commercial real estate landscape "faced the largest headwinds due to an uncertain economic outlook, noting that an addition of 625,000 sq. ft. of new supply in the last quarter alone "had no positive impact" despite usually being a boost to leasing activity.

During the last few months specifically, Toronto's proportion of unused offices rose the most, by 160 basis points from the previous quarter, even with significantly fewer sublet offerings on the market.

The construction of commercial spaces has also slowed down, with Toronto having the lowest square footage of offices in active construction since 2017, even though the city is home to nearly half of current office construction nationwide. 

With vacancy for this segment at an all-time high of 17.4 per cent as of Q4 2023 (compared to 15.8 per cent the quarter prior), it is understandable why stakeholders like CBRE are worried. According to a 2023 report from Atlus Group, the city should expect to have a glut of unoccupied workspace until the 2040s.