Toronto office rents surge in downtown and midtown

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Toronto’s office rental market experienced a slight uptick in rents for the second quarter, with the average asking net rental rate for available space in all building classes reaching $27.30 per square foot (psf) by quarter-end. However, this overall increase belies a complex and varied landscape, with 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, downtown and midtown markets led the charge on rising rates, while Toronto west held steady and Toronto north and east saw slight declines.

In downtown, the average rent climbed by $0.50 to $36.60 psf, 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 psf. In contrast, more economical asset classes in downtown showed little change.

Midtown followed a similar upward trajectory, though at a more moderate pace. Both areas showed strong demand for high-quality office spaces as businesses sought prestigious locations with top-tier amenities.

Conversely, Toronto north and east experienced downward pressure on rental rates. These areas, which are in less demand than central locations, saw their average asking rates inch downward. Toronto west remained stable, indicating a balanced market with aligned supply and demand, in contrast to fluctuations seen elsewhere in Toronto.

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Toronto-wide, class C buildings — typically older, budget-friendly offices in need of upgrades — were the only segment to record a decline in average rates quarter-over-quarter, falling by $0.40 to $22.60 psf.

Meanwhile, availability rates in downtown Toronto rose 90 basis points (bps) quarter-over-quarter to 20 per cent, marking a 170 bps increase year-over-year. Vacancy rates also climbed, increasing 70 bps during the quarter and 270 bps year-over-year to 15 per cent. Net absorption turned negative in the second quarter, with occupied area declining by 337,500 square feet, offsetting the gains from the first quarter as tenants of new buildings vacated their previous larger premises.

According to the report, the second quarter also saw the completion of two new, high-profile buildings: 2 Queen St. W., offering 29,100 square feet of office space, and the 93,100 square foot Queen Richmond Centre West Phase 2, at 375-381 Queen St. W., which was snapped up before the doors even opened.

Avison Young notes that these new projects are among the final office buildings slated for completion in the foreseeable future, signaling a significant slowdown in new office construction.

“As the supply pipeline continues to taper off, just five projects (totaling 2.6 million sf) remain under construction.”

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