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Downtown Toronto offices hit 18% amid signs of national stability

A recent report reveals that nearly one-fifth of downtown Toronto office spaces sit empty, even as the rest of Canada's office vacancy rates stabilize.

According to the latest Canada Office Figures report by CBRE, Toronto's downtown office vacancy rate surged to 18% in the first quarter of 2024. This increase contributed to the country's overall vacancy rate of 19.5%, largely due to the reintroduction of WeWork spaces into the market.

WeWork made headlines on Tuesday by announcing it would save US$8 billion in rent after exiting 150 locations and renegotiating leases for another 150. In November 2023, the company revealed plans to close at least five Canadian locations, including two in Toronto, two in Vancouver, and one in Burnaby.

However, there are glimmers of hope for stabilization. Across the country, there was a net absorption rate of 439,000 square feet in the first quarter, indicating more space was leased than vacated. This marks the first time since the second quarter of 2022 that Canada has seen a positive net absorption rate.

CBRE Canada Chairman Paul Morassutti expressed cautious optimism, noting, “While vacancy has continued to increase nationally, we are starting to see some green shoots in Canada’s downtown office markets." He highlighted that five of the ten cities tracked recorded declining downtown vacancy rates quarterly, hinting at a potential turnaround.

The report attributes the positive net absorption rate to successful leasing in key developments like The Post and B6 in Vancouver, and Wawanesa Tower in Winnipeg. While Toronto and Montreal faced challenges, other major Canadian cities maintained stability.

Furthermore, a slowdown in office construction could aid in reducing Canada’s vacancy rate. The first quarter saw no new projects breaking ground, with active construction at its lowest levels since 2011.

In a bid to alleviate office space pressure, 13 new office-to-residential projects were completed across eight cities during the quarter, collectively freeing up 870,000 square feet of office space.

The report underscores the dynamic nature of Canada's office market, with shifts in vacancy rates reflecting both challenges and opportunities. As stakeholders navigate these changes, the hope is that the signs of stabilization witnessed in certain regions will extend to the broader market, fostering a more balanced landscape for office space utilization across the country.