A fresh wave of COVID-19 infections has dimmed the prospects of the “already subdued” Toronto office market in Q1 2021, according to Avison Young.
In its latest Office Market Report covering the Greater Toronto Area, Avison Young said that the third wave and the on-off lockdowns point to overall slower growth than anticipated.
“Given market risks, occupiers in general are taking a wait-and-see approach,” Avison Young reported. “Notwithstanding this, the hope is that the market is poised to recover strongly once vaccinations reach a critical mass, leading to a widespread reopening of many offices in fall 2021 or early 2022.”
The market’s overall downtown office vacancy rate stood at 6.4%, increasing by 2.1% annually.
“At 14.2%, GTA-wide availability is higher now than it was following the global financial and dot-com crises,” Avison Young said.
The number of buildings in the region, with more than 50,000 square feet available, also spiked from 97 buildings a year ago to 176 buildings during the first quarter.
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“Seeking clarity, a multitude of survey results indicate the spectrum of what workplaces of the future will look like when we return,” Avison Young said, but quickly added that while many companies are indeed looking to provide increased employee flexibility, “fully remote environments will likely be exceptions, rather than the rule.”
“Another trend to watch is whether large occupiers will expand partnerships with coworking providers, offering employees access to the flexible providers’ ubiquitous locations,” Avison Young said.
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Despite these troubling signs, however, a silver lining comes in the form of “an uptick in qualitative measures such as tour activity and interest from prospective tenants, as reported by brokers and landlords.”
“The fundamental impact has been the much longer time required to negotiate and finalize lease transactions. GTA-wide leasing activity totalled two million square feet (msf) in the first quarter of 2021 (two-thirds of that renewals) – the best quarterly result since the pandemic began, and equal to almost 40% of 2020’s full-year total,” Avison Young said. “The pandemic has also amplified the trend toward smaller lease deals and shorter terms.”