The Takeaway with Shekhar Bhardwaj: There’s More to Toronto’s Office Subleasing Market Than It Appears

March 23, 2023 4 Minute Read

Toronto office towers

The Takeaway with Shekhar Bhardwaj

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.

In his most recent meetings with some of CBRE’s top clients, CBRE’s Toronto Downtown Research Manager has been addressing the office sublet market. 

A significant amount of downtown sublease space is set to expire in the next two to five years, which will potentially create more competition for the space being marketed directly by landlords.

“But the way I see it,” Bhardwaj says, “a certain percentage of all that sublease space will be retained by the tenants. They’re simply testing the market and/or rightsizing; they don’t necessarily want to get rid of all of their space.”

Move-in ready sublease space is attractive right now because tenants don’t have to spend big to build out their workplace from base building condition at a time of high interest rates and rising construction costs.

That said, Bhardwaj notes that not all sublease spaces are created equal. Spaces coming online in some Class B, Class C or brick and beam buildings may struggle to find takers, especially among traditional office users in the FIRE and legal sectors.

“Just because there’s a lot of sublease space on the market, doesn’t mean there’s a lot of competition for the AAA or AA direct office space,” Bhardwaj says. “Sometimes that sublease space can be in suboptimal locations and buildings, with a landlord not offering the right amenities and services.” 

The takeaway for landlords: “Don’t let high vacancy rates scare you. True vacancy only concerns the product that matters to you – your asset. ”

"True vacancy only concerns the product that matters to you — your asset."

“If you’re talking about a Big 5 bank user, they’re only concerned with financial core or greater core, Class A or better. So for these tenants, the vacancy rate is far lower than the officially posted 13.6%.

“But the pendulum could swing in the other direction,” Bhardwaj adds. “If you’re a tenant looking for funky brick and beam space under 5,000 sq. ft. in say, Downtown West, you’re facing a market with 22% vacancy.

“It’s harder for landlords to make these spaces stand out. So accommodating tenants on a customized basis, creativity and flexibility will be essential here.”

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