JLL reports Toronto office vacancy rate continues to rise – Daily Commercial News

TORONTO — A new report from commercial real estate firm JLL suggests there may not be any movement on interest rates until the third quarter of 2024 and even then, the market may see fewer cuts than it is hoping for. 

The analysis comes from JLL’s  2024 Canadian Commercial Real Estate Outlook report, released the final week of April.

According to the Bank of Canada’s latest Monetary Policy Report, inflation is expected to remain closer to three per cent in the second quarter of 2024, JLL reported.

While economic growth will be uneven and market-specific, realtors may expect broader momentum likely returning as the year progresses, with risks weighted toward the first half of the year. Conditions remain weak but not recessionary, and by Q3 and Q4, marginal interest rate relief is widely anticipated. 

In the Ontario office sector, the gap between higher- and lower-grade buildings continues to widen as Class A dominates absorption.

In Q1, downtown Toronto experienced a 70 basis-point increase in the total vacancy rate, with Class C assets seeing the most significant rise. 

With no office projects breaking ground in Q1, the office construction pipeline in downtown Toronto fell to its lowest point since 2016, totalling 2.67 million square feet. 

Leasing activity in downtown Toronto during Q1 was primarily driven by renewal and sublease transactions, with a notable concentration in the financial core and downtown south nodes.

Meanwhile, the industrial sublet market came to prominence as existing tenants manoeuvred through a stagnant economy.

Vacancy in the sector saw a sizeable 70 basis point increase to 3.1 per cent quarter-over-quarter, the highest rate seen since Q3 2017. 

The market saw a large amount of negative net absorption at minus 2.6 million square feet, partially driven by new sublease availabilities. 

Total available sublet square footage reached 5.5 million square feet, a 434 per cent increase year-over-year. 

Average net asking rents saw a 1.4 per cent decline quarter-over-quarter to $18.35, a 0.5 per cent increase year-over-year, as the market continued to cool.