Gap between higher and lower grade buildings continues to widen as Class ‘A’ dominate absorption: Report

According to a report by JLL, in the first quarter of 2024, Downtown Toronto experienced a 70 basis-point increase in the total vacancy rate, with Class ‘C’ assets seeing the most significant rise.

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A report by JLL provides Greater Toronto office insight for Q1 2024.

Downtown Toronto began the year with the first positive quarterly net absorption total since Q3 2022, which was predominantly due to three large-block tenants moving into pre-leased spaces at 160 Front St. W. and 375-381 Queen St. W., according to the report.

The report noted that the net impact of the potential vacant spaces left behind by these relocations remains
uncertain.

The report noted that class ‘B’ and ‘C’ assets continued to experience lackluster demand, which resulted in more than -250,000 square feet of negative quarterly net absorption, the lowest total since Q4 2022.

Business service tenants and co-working groups accounted for most of the newly vacated spaces, according to the report.

In terms of sublease availability in Downtown Toronto, the report noted that it decreased by 100 basis points in Q1, marking the second consecutive quarter of decline.

Sublease listings reaching their natural expiry led to a 130-basis point increase in direct availabilities in Q1, the largest jump since Q4 2021, according to the report.

With no office projects breaking ground in the first quarter, the office construction pipeline in Downtown Toronto fell to its lowest point since 2016, totaling 2.67 million s.f.

Leasing activity in Downtown Toronto during the first quarter was primarily driven by renewal and sublease transactions, with a notable concentration in the Financial Core and Downtown South nodes.

In the Greater Toronto Area (GTA) West, the total vacancy rate fell for the third consecutive quarter, driven by markets including Airport Corporate Centre, Mississauga City Centre, and Oakville.

The report noted that absorption split reflects the broader flight-to-quality trend: 217,043 s.f. of positive net absorption in the Class ‘A’ segment, -204,924 s.f. in Class ‘B’ and -11,935 s.f. in Class ‘C’, essentially zeroing out overall net absorption.

Sublease availability also decreased for the second consecutive quarter, falling by 4.7 per cent.

“Activity in the West slowed considerably compared to Q4 of last year. However, there is general optimism as deal velocity remains robust, as does demand for high quality space,” read the report. “Landlords continue to be
aggressive, offering large inducement packages hoping to sway tenants. Tenants continue to migrate to built-out space in amenity rich environments, demonstrating a desire to control costs while making their work environment ‘commute worthy.'”

In the GTA North and East, leasing activity remained steady, sustained by renewal and extension deals predominantly in the North Yonge and Hwy 404 & 407 nodes.

In terms of quarterly net absorption in the North and East, it totalled 205,933 s.f., with Class ‘A’ assets contributing to more than 75 per cent of the positive absorption.

Sublease availability decreased by 3.0 per cent quarter-over-quarter, sitting at approximately 1.5 million s.f., which marked the lowest level of sublease availability in GTA North and East since 2022 Q4, according to the report.

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