TORONTO (Reuters) - Companies with downtown Toronto offices are offering the most space for sublet in four years, as the coronavirus pandemic shrinks their requirements and creates an uncertain future, data from the CoStar Group shows.
There was 1.4 million square feet (130,064 square meters) available for sublet in leased downtown Toronto offices in the three months ended June 30, more than double that of a year ago, according to the data shared with Reuters. That was 22.5% of all available office space in downtown Toronto, up from 10.9% a year earlier.
While the increase has raised downtown office vacancy rates to 3.6%, the highest since the beginning of 2018, from 3% a year earlier, vacancies could rise even further as sublet space continues to enter the market, while few takers materialize.
“Who’s going to take this space is the question mark,” said Roelof van Dijk, director of market analytics for Canada at CoStar. “Very few companies are doing deals during this downturn.”
If challenging conditions persist, or a coronavirus vaccine fails to materialize by the time leases come up for renewal, “that’s when we’re going to really see the rethinking of space requirements by tenants,” he added.
Companies would likely try to renegotiate to take less space or exit their leases altogether, he said.
The increase in vacancies comes even as 8.8 million square feet of office buildings remain under construction in downtown Toronto, a CBRE Group first-quarter report here said.
“A majority of that space is pre-leased; however, the tenants ... are coming from older buildings,” van Dijk said.
Particularly with the increased focus on health resulting from the pandemic, many older buildings “will need to invest in upgrading their elevators, (air conditioning and ventilation systems) et cetera to remain competitive.”
Reporting by Nichola Saminather in Toronto; Editing by Matthew Lewis