A shifting Toronto real estate market saw suburban office space achieve its first annual net absorption gain since 2019, while downtown vacancy rates climbed despite stable rents, according to recent reports from the CBRE. Meanwhile, industrial properties faced increased availability due to record-high new supply, softening lease rates but sustaining strong absorption.
GTA Suburban Office Market
The Greater Toronto Area’s suburban office market experienced a notable milestone in 2024, recording its first full year of positive net absorption since 2019. While the overall vacancy rate remained stable at 20.7% compared to Q3 2024, the market showed signs of gradual improvement. The average net asking lease rate declined slightly to $17.74 per square foot (PSF).
The positive momentum in Q4 2024 was primarily driven by the East market, which saw net absorption gains, while the West and North submarkets recorded negative absorption. Over the entire year, the suburban market registered a modest 9,000 square feet of net positive absorption—small but significant, marking a turnaround after years of negative absorption.
Sublease availability continued its steady decline, reaching 2.7 million square feet. This represents 16.9% of total vacant space, dropping by 90 basis points (bps) quarter-over-quarter and 350 bps year-over-year. The CBRE expects this trend to persist into 2025 and early 2026, with sublease availability returning to its long-term average unless broader economic conditions worsen.
Despite these positive developments, the suburban office construction pipeline has slowed significantly, as developers remain hesitant to initiate new projects in this segment. This limited new supply could lead to rising net rents and declining vacancy rates in the highest-quality and newest buildings within the suburban office market.
Toronto Downtown Office Market
The downtown Toronto office market saw an increase in vacancy rates, rising to 18.5% in Q4 2024. However, despite this, the average net asking lease rate increased to $34.80 PSF.
A key factor in the rising vacancy rate was the delivery of new office space that remained unoccupied, along with previously vacated office space returning to the market. This led to an 80-bps increase in the overall downtown vacancy rate. Nevertheless, some positive signs emerged, with an increasing number of return-to-office mandates and stronger transactional activity in Q4, which could signal a quicker-than-expected recovery in 2025.
While Class B and Class C office buildings continue to struggle with high vacancy rates and weaker demand, trophy (AAA) office assets have remained resilient. These high-end buildings saw net positive absorption of nearly 1 million square feet in 2024, keeping their vacancy rate at a low 7.6%. Additionally, sublease vacancy in these top-tier buildings dropped significantly from 41.2% in Q3 to 28.6% in Q4.
Overall, downtown asking net rents have remained stable throughout 2024, hovering around $35.00 PSF despite the high vacancy rate. However, landlords have been offering inducements to attract tenants, which has placed downward pressure on net effective rents.
GTA Industrial Market
Toronto’s industrial real estate market saw significant new supply added in Q4 2024, leading to an increase in availability rates and a continued decline in asking lease rates.
The availability rate rose to 4.7%, a 50-bps increase from the previous quarter, due in part to the 6.9 million square feet of new supply delivered. Over the entire year, 14.2 million square feet of new industrial space was completed, making Q4 2024 the highest quarter for new supply in over 20 years.
Despite this increase in supply, demand remained strong, with 2.9 million square feet of positive net absorption during the quarter. Importantly, 1.1 million square feet of this absorption occurred in existing buildings, showing continued tenant interest outside of newly built spaces.
However, asking lease rates declined for the fifth consecutive quarter, ending the year at $17.18 PSF. On a year-over-year basis, this represents a 5.9% decrease, or $1.07 PSF. Meanwhile, the average asking sale price dropped to $357 PSF.
The CBRE reports that an additional 10.2 million square feet of new industrial supply is expected, with less than 7.5 million square feet still available for lease. This ongoing supply pipeline will play a crucial role in shaping rental rates and availability levels in the coming year.