With the coronavirus outbreak showing no signs of slowing down, the Greater Toronto Area office market is now exhibiting conditions similar to its state during the 2008/2009 financial meltdown, according to Colliers Canada.
“Six months into the COVID-19 pandemic, tenants are no longer taking the ‘wait and see’ approach – instead, they are considering downsizing, relocating or adopting permanent work-from-home solutions,” Colliers said in its recently released GTA Sublease Update Report.
GTA sublet availability saw a 50% quarter-over-quarter increase in Q2 2020, reaching 2.5 million square feet (SF) and pushing sublet availability to nearly 18%, the report said.
“In the downtown market, this trend was even more pronounced, with sublet availability growing 70% from the previous quarter to over 800,000 SF and increasing the proportion of sublet availability to 32%,” Colliers said.
Vacancy levels spiked particularly strongly during the first few months of government-mandated mobility restrictions and social distancing measures.
“Since the beginning of the COVID-19 pandemic in March to August, 4.4 million SF of direct space and 1.8 million SF of sublet space was listed in the GTA market,” Colliers said. “Of this, the downtown market represented 64%, or 1.2 million SF, of total new sublet availability.”
And this trajectory is likely to last for at least the next few quarters.
“As expectations for return to office dates are being pushed out to winter or even summer 2021, it is likely the amount of sublet supply will continue to increase,” Colliers said. “With lessened demand and lack of transaction activity, the downward pressure on rental rates will intensify.”
The report concluded that it is increasingly likely that tenants will mostly retain their current remote working arrangements, thus contributing to a further increase in the supply of sublet space.
“Despite the large influx of sublet availability, fewer transactions are taking place as companies have yet to take advantage of these new listings,” Colliers said. “With this shift in supply and demand, downward pressure on rental rates will probably intensify over the next several quarters.”