Office utilization continues to steadily gain momentum: JLL
JLL recently released its Q2 2024 office reports, which revealed that downtown vacancy rate exceeded suburban for the first time in Toronto and noted that the overall use of offices continues to gain momentum.
In Q2, downtown Toronto experienced an 100-basis-point increase in the total vacancy rate. The Downtown North node experienced the most significant quarterly rise, with a 290-basis-point surge.
In terms of sublease availability, it increased by 320 basis points after two consecutive quarters of decline. As of the second quarter of 2024, the average days-on-the market for sublease availabilities was 16 months, which was a significant compression from 23 months on average in the second quarter of last year.
The report noted that downtown experienced a 1.0 per cent decrease year-over-year in average direct net asking rents, sitting below the three-year running average as of Q2 2024.
Gross leasing volume in the second quarter in downtown Toronto was mostly driven by large-block renewal and expansion transactions.
This quarter also marked the Bank of Canada’s first policy interest rate cut since 2022. The report noted that while this rate cut is
unlikely to have an immediate impact on the office leasing market, more cuts that are anticipated over the next year could cause confidence in the private sector which will likely increase hiring and therefore, a demand for space.
The Greater Toronto Area (GTA) West saw an uptick in the volume of smaller deals, typically within the range of 4,000 to 6,000 s.f. with average additional rents in GTA West increasing 4.5 per cent year-over-year and 2.5 per cent quarter-over-quarter.
The report noted that unlike most GTA markets, GTA West saw a consistent fall in overall vacancy over the past year, especially for Class ‘A’ and Class ‘C’ assets, which can be attributed to its tenant base.
In the second quarter of 2024, the GTA North market saw another negative absorption of -26,718 s.f., which pushed the year-to-date net absorption to -94,856 s.f. GTA East also saw its second positive net absorption this year. Total vacancy saw a rise in both GTA North and East, increasing by 10 and 40 basis points year-over-year, respectively.
The Southwestern Ontario office market showed a slight softening with the vacancy rate increasing by 50 bps to 14.1 per cent.
Availability increased by 150 bps this quarter to 16.8 per cent and decreased in Waterloo, Cambridge and Guelph, while Kitchener recorded a 430 bps increase. The report also noted that there is continued interest in high-quality, second-generation space that provides an improved work environment with minimal capital outlay from the tenant.