The downtown Toronto office market has just experienced its first decline in office availability in five years, according to JLL’s Q4 2024 Toronto Office Insight report. It cites “aggressive concession packages” by office owners as one contributing factor to the decline.

Whether that is a blip, or becomes a trend in the downtown market, remains to be seen.

JLL reports an availability rate of 20 per cent in downtown Toronto, a 30-basis-points reduction from Q3. Strong leasing activity in the quarter led to the reduction, although the total vacancy rate was flat at 18.2 per cent.

“Despite the addition of several large blocks of vacancy in the Financial Core and Downtown South, Downtown overall recorded positive net absorption in Q4, driven by over 152,000 square feet of positive absorption in the Trophy segment,” the report states.

Year-over-year, the trophy and class-A segment market saw 1.2 per cent of net absorption as a percentage of total inventory. However, illustrating the ongoing and widening gulf between premium and non-premium properties - which JLL calls “feast or famine” in the report - class-B and -C offices saw a negative net absorption of 5.6 per cent.

The downtown market has approximately 83.6 million square feet of inventory.

Large-scale leasing activity on the rise

JLL cites a series of large downtown leases coming due as another factor in the lower availability rate.

“Landlord concessions are helping to facilitate activity,” the report states. “One of the largest drivers of increasing leasing momentum has been large tenants opting in favour of renewals and extensions that have included aggressive concession packages.”

The average direct net asking rent in the downtown was $36.73 during the quarter.

Among the largest relocation trophy and class-A deals were:

• a 250,000-square-foot lease signed by Blake, Cassels & Graydon LLP at CIBC Square II which is scheduled for completion later this year;
• an 89,000-square-foot deal at First Canadian Place by Interac; and
• 65,000 square feet leased at Blaney McMurtry LLP at Scotia Plaza.

Greenshield signed an 88,000-square-foot relocation lease to 30 Wellington St. W., which JLL lists as a class-B property.

Brookfield acquires 2 Queen St. E. tower

The report also notes one significant office transaction in the downtown during the fall, with Brookfield Properties buying out AIMCo and CPPIB to be the sole owner of 2 Queen St. E. That tower, which contains 477,000 square feet of space, sold for $161.3 million or $338 per square foot.

Looking ahead in the downtown, the report is non-committal about whether availability - and ultimately occupancy - will continue to decline.

“Given Toronto’s recovering labour market, landlord enthusiasm to get deals done, and more lease maturities coming to market, conditions are ripe for 2025 to be the best year in the office market since the pandemic,” it states.

“Yet whether the uptick in leasing velocity is a one-time event, or the beginning of a more enduring trend remains uncertain, and much will depend on how trade tensions with the U.S. unfold.”

Citywide and other Toronto submarkets

Citywide, JLL reports a vacancy rate of 18.1 per cent and an availability rate of 19.9 per cent. On a year-over-year basis, there was 1.15 million square feet of negative absorption during 2024, an increase of 60 basis points.

There were almost 2.5 million square feet of new office completions during the quarter, with an additional 2.6 million square feet remaining under construction. All of the Q4 deliveries and the buildings under construction are class-A properties.

The current inventory citywide is 187.3 million square feet.

In other Toronto submarkets, Toronto West saw availability decline to 18.1 per cent and vacancy dip to 17.7 per cent from Q3, based on net absorption of about 68,000 square feet. Class-A properties led the decline.

Interestingly, sublease space fell significantly on a year-over-year basis, down 7.2 per cent, a reduction of over 540,000 square feet from its Q1 2023 peak.

GTA North and East saw availability decline to 20.5 per cent, and vacancy dip to 17 per cent in the quarter thanks to 84,060 square feet of absorption.

Southwestern Ontario vacancy rises

JLL also released its report for Southwestern Ontario, which covers the Kitchener, Waterloo, Guelph and Cambridge districts.

The market saw negative net absorption of 230,726 square feet in Q4, driving vacancy up 1.2 per cent to 15.3 per cent and availability to 16.8 per cent. It cites Google’s decision to consolidate some of its space, returning office space at 25 Water St., in Kitchener, as the main factor.

On the year, the region saw a slight 78,552-square-foot increase in absorption. It comprises 18.7 million square feet of inventory.

The report also notes an increase in sales activity, including the sale of the 605,938-square-foot Northfield Corporate Campus by Spear St., Capital to a numbered Ontario company. It is located along University Ave. East in Waterloo.

That $76.7-million transaction was driven, in part, by a desire to turn some of the campus space into a data centre, JLL states.

“Vacancy, availability and rents are expected to remain stable,” into 2025, the report states. “We expect an abundance of short-term renewals heading into 2025, as relocation and construction costs remain high.”