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The Toronto office leasing market saw a slight increase in rents in the second quarter, with the average net rent for available space across all building classes at $27.30 per square foot (psf) at the end of the quarter. However, this overall increase belies a complex and varied landscape that exhibits significant differences across regions and building classes.
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According to global commercial real estate giant Avison Young's second-quarter office market report, it was the Downtown and Midtown markets that led the way in rising prices, while Toronto West remained flat and Toronto North and East saw slight declines.
Downtown, the average rent increased by $0.50 to $36.60 per square foot, driven entirely by so-called trophy buildings – a small, unofficial class of investment-grade properties that lead the industry in cutting-edge technology and high-end design. This asset class saw a sharp increase to $52.60 per square foot. In contrast, lower-priced asset classes downtown showed little change.
Midtown followed a similar upward trend, albeit at a more moderate pace. Both areas showed strong demand for high-quality office space as companies sought prestigious locations with top-notch amenities.
In contrast, rental prices in the north and east of Toronto have seen downward pressure. In these areas, which are less in demand than the central locations, average asking prices have declined slightly. Toronto's west has remained stable, indicating a balanced market with matched supply and demand, in contrast to the fluctuations seen elsewhere in Toronto.
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All of Toronto, Class C buildings — typically older, Affordable offices in need of modernization — were the only segment where average prices decreased by $0.40 to $22.60 per square foot compared to the previous quarter.
At the same time, availability rates in downtown Toronto increased 90 basis points (bps) quarter-on-quarter to 20 percent, up 170 bps year-on-year. Vacancy rates also increased, up 70 bps quarter-on-quarter and 270 bps year-on-year to 15 percent. Net absorption turned negative in the second quarter, with occupied space declining by 337,500 square feet, offsetting gains from the first quarter as tenants from new buildings vacated their previously larger spaces.
According to the report, two new high-profile buildings were also completed in the second quarter: 29,100 square meters of office space at 2 Queen St. W. and the 93,100 square meter Queen Richmond Centre West Phase 2 at 375-381 Queen St. W., which was snapped up before opening.
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Avison Young notes that these new projects are among the last office buildings scheduled for completion in the foreseeable future, indicating a significant slowdown in the construction of new office buildings.
“As supply tightens, only five projects (totaling 2.6 million square feet) remain under construction.”
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