Article
Q4 Was Downtown Toronto’s Best Quarter for Office Leasing in 3 Years
February 3, 2025 3 Minute
Transaction activity in the downtown Toronto office market was exceptionally strong in the final quarter of 2024, with approximately 1.16 million square feet of net new leasing deals inked for space in existing office buildings in the city centre.
This leasing volume is considerably higher than the 770,000 sq. ft. leased in downtown Toronto in Q4 2023 and the 590,000 sq. ft. leased in Q4 2022, and was the best quarter for office leasing velocity since 2022.
Downtown Toronto’s overall vacancy rate sharply increased by 80 basis points quarter-over-quarter in Q4, however, ending the year at 18.5%, due to 362,808 sq. ft. of negative absorption of office space, meaning that that much more space came back on the market than was leased. (All figures exclude Midtown.)
AAA buildings have been performing better than lower-tier office towers, but this premium asset class was not immune from the economic headwinds in Q4, with AAA office vacancy in Toronto’s downtown core increasing to 7.6%. The majority of the vacancy in the fourth quarter of 2024 originated from Class A assets.
“There's a lot of economic uncertainty out there, but barring an external shock, it appears the downtown Toronto office market has bottomed,” says CBRE Toronto Downtown Managing Director Molly Westbrook. "While office vacancy has increased in Toronto’s core, we finished the year strong and office construction is down to 1.9 million sq. ft., which will put less pressure on vacancy.”
Overall, back-to-office physical occupancy levels in downtown Toronto – not to be confused with the vacancy rate noted above – came in at 73.0% as of Dec. 1, 2024, according to SSRA. Momentum seems to be shifting as an increasing number of occupiers are implementing official office attendance policies.
On the construction front, due to an abundance of vacancy in existing office assets, owners are hesitant to break ground on new office projects. The newest major office development by Hines, CIBC Square Phase II, is due for completion in Q3 2025 and is already over 80.0% pre-leased, demonstrating that major tenants are still very much in competition for AAA space.
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