Article
The Takeaway with Shekhar Bhardwaj: Flight to Quality Shifts Into Overdrive
June 16, 2023 2 Minute Read
When Shekhar Bhardwaj gathers real estate clients and insiders once a month to offer his insights on what’s happening in the Toronto office market, they’re all ears.
In this reoccurring series, we’ll highlight some key considerations from Shekhar’s unique perspective as CBRE’s Research Manager in Downtown Toronto.
There is still demand for office space. The overall volume of leasing transactions might be lower, but the intensity of competition for the best office space in Toronto has been heating up.
New numbers from CBRE’s Toronto Downtown research manager Shekhar Bhardwaj definitively show that the trend of tenant demand moving toward higher-quality spaces has been turbo-charged by the pandemic
Bhardwaj’s comparison of Class A leasing activity over the past four years reveals that Class A space in 2022 represented nearly 60.8% of overall leasing activity compared to 2019, when it represented just 52.8% of overall leasing.
“Flight to quality was happening before, during and after the pandemic, as cream rises to the top in good and also bad times,” he says. “But what we’re seeing now is just how much that flight to quality has come to dominate demand for office product in Toronto.”
Downtown AAA office space has a 6.3% vacancy rate as of June 13, 2023, making it a strong landlord’s market. Meanwhile the market for older and inferior office buildings built pre 2009 has a 17.0% vacancy rate as of June 13, 2023, putting tenants in the driver’s seat.
“The pandemic has added fuel to this trend, and landlords could be left behind if they don’t take steps to upgrade their buildings to meet rising expectations,” Bhardwaj says.
A 1290-basis-points jump in overall vacancy between Q1 2020 and the current period is remarkable, but it makes sense in the context of the secular shift driven by rise of hybrid work.
“If people get two days at home, and three days at the office,” says Bhardwaj, “which would you choose to commute for: Class B and C, or Class A?”
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