TORONTO — Downtown Toronto saw an upswing in leasing activity in the third quarter despite economic headwinds, Jones Lang LaSalle (JLL) has reported.
JLL’s Office Insight report for Q3 found the total vacancy rate in Downtown Toronto hit a peak of 15 per cent in the quarter. This was primarily due to significant amounts of Class C vacant space added to both the downtown east and west markets.
Despite an annual 3.8 per cent increase, Toronto Downtown saw a second quarterly dip in average direct asking net rents, sitting at $37.67 as of Q3. The region saw two new completions in Q3 2023, totalling 304,876 square feet, with a 16.5 per cent average pre-leased rate.
JLL found that office occupiers continue to weigh their capital expenditure on real estate amidst overall economic uncertainty. The finance, insurance and real estate (FIRE) sector continues to lead in demand for premium office spaces. Notable examples include Northleaf Capital and Pacific Life, who leased up to 52,000 square feet and 23,000 square feet at Scotia Plaza, respectively; both are relocations.
On the renewal front, Desjardins Securities extended and expanded at 25 York St., leasing up to 57,000 square feet. ICICI bank is relocating from the suburbs to downtown for approximately 40,000 square feet in a newly improved space on Bay Street.
Downtown Toronto sublease availability plateaued in Q3, sitting at 4.4 million square feet. Notably, Downtown Class A sublease availability decreased by 2.9 per cent quarter-over-quarter, with downtown south registering a notably substantial decline by 24.2 per cent. This decline in sublease availability is credited to not only to strong demand for quality sublet space in newer buildings, but also the increasing flexibility in disposition and termination options offered by landlords that has resulted in more spaces being vacated.
With more than five million square feet of office space delivered since the onset of COVID-19, the construction pipeline continues to thin out, JLL stated. In response to the diminished demand for new office space, a few mixed-use projects have reconfigured their usage mix while still in the proposal or early construction phase.
Two noteworthy projects that broke ground in Q3 are 266 King St. W. and 481 University Ave. Both projects are retaining their office components and adding high-rise residential condominiums above.