In the 2024 third quarter, Colliers reported a 13.5% vacancy rate for downtown Toronto office space, a shock from the city’s 2% vacancy rate during pre-Covid years. Macroeconomic factors are shaping leasing decisions as the office market stabilizes, with declining interest rates and cooling inflation providing some relief to tenants and landlords. However, lingering uncertainties created by recent financial pressures can still influence decision-making.

The continuing evolution of hybrid work is intersecting with these economic conditions, as businesses balance cost considerations with the need for dynamic office spaces that foster collaboration and engagement. Dan Holmes, Colliers president, brokerage services Canada, says vacancy will peak in 2025, which is the fifth year of a five-year cycle. Long-term leases replace short-term deals in 2025, and companies are now locking into long-term tenancies after years of short-term deals designed to keep their options flexible during the pandemic and its aftermath.

Rents have softened in lower than A-class buildings, with the Colliers Q3 2024 report putting downtown average office net rental rates at $34.50 per square foot. Calgary municipal incentives to convert office to residential had some effect on the city’s office glut, but analysts don’t expect a rash of conversions or demolitions to deal with underperforming assets in Toronto.

The market is experiencing a shift towards more days in the office due to the effects of working from home. Brokers predict that the trend will continue, with more days in the office than fewer. The continued use of video conferencing means landlords must consider office configuration, as industries that prefer open concept, like tech, are looking for more breakout rooms or meeting rooms to accommodate video calls. 

The market in most Canadian cities is stabilizing, with strong returns to office in markets like Vancouver, Calgary, Edmonton, and Winnipeg. However, Ottawa faces uncertainty regarding the federal government’s return to office mandate.

Source: Globe and Mail