Office vacancy rates in Toronto and Vancouver are highly likely to increase by more than twofold in less than half a decade, according to a new study by CoStar Group Inc.
By the end of 2023, vacancies in downtown Toronto’s offices will rise to about 6%, from a historic low of 2.9% in Q2 2018. Vancouver is also predicted to reach 6% in four years, from a record 2% this quarter.
This trend will be fuelled by a rush of new offices entering the market. In the next five years, as many as 25 new office or mixed-use buildings are projected to be completed in downtown Toronto, along with 15 new towers in Vancouver.
“A lot of the existing landlords that are going to be suffering with higher vacancy in their existing stock,” CoStar director of market analytics (Canada) Roelof van Dijk told Bloomberg. “They’re the ones that are building.”
New office space will also play a major role in slowing down rent growth, continuing the easing already visible as of this quarter.
In downtown Toronto, the 6% annual gain in rent during Q2 2019 was considerably below the peak of approximately 8% pace seen by the end of 2017. In downtown Vancouver, the 6% year-over-year rent growth during the second quarter was nearly half the 11% peak in Q3 2018, and this would further improve to 1.5% by 2022.
“Vacancies are incredibly low in those two markets, rental rate growth has peaked, we’re seeing it come down in the data points were collecting,” Van Dijk explained.
“Our forecasts show it’ll continue to come down as the new supply comes online in both of those markets, specifically in the downtown.”