Low Vacancy Rates in Downtown Shouldn’t Come as a Surprise

According to a new report by CBRE, less than 5% of commercial space in downtown Toronto is vacant – a rate that is tied with booming San Francisco as the lowest in North America. Incredibly, this has occurred at the same time that Toronto has added an additional 4,400,000 ft2 (408,800 m2) of new office space over the past three years, enough room to accommodate 20,000+ employees. The City Planning Division’s 2015 Toronto Employment Survey counted half a million downtown workers, by far the highest level in Toronto’s history.

From the mid-1990s to the 2008 recession, the majority of new office space was built outside of the City of Toronto municipal boundary in low density office parks. Since 2009, however, there has been a complete reversal of this pattern as recently thriving suburban office parks are now experiencing double digit vacancy rates and declining rents. Many companies in suburban locations are now actively consolidating their offices into the downtown, including the long list mapped here, plus more recently Yellow Pages, Ontario Telemedicine Network and D+H. What has changed over this relatively short time span to so dramatically tip the balance of the market in favour of the downtown? What are the implications for Toronto and how should the City be responding through long-range planning? These are some of the critical questions that we are currently studying in TOcore, our ongoing initiative to create a new plan for Toronto’s downtown.

The study’s initial findings indicate that access to talented labour is the most significant factor influencing office location decisions. After access to labour, the next most important drivers are proximity to similar businesses, real estate costs, and adjacency to amenities. Every year, the downtown adds approximately 10,000 new residents, many of whom are highly educated young adults. Companies looking to gain access to this growing talent base are increasingly seeing a downtown office as a necessity. Combined with the continued expansion of the regional GO rail network, which currently sees 91% of its passengers terminate their trips at Union Station, it is likely that downtown’s office market will continue to thrive.

Conversely, these trends highlight the challenges ahead for suburban municipalities seeking office employment growth. Now, more than ever, it is critical that we plan across the region to create complete communities oriented around transit. Equally important is addressing the gaps in quality transit access to existing office nodes to help them better connect with the next generation’s labour force.

The downtown generates 51% of Toronto’s export-based GDP, 25% of its tax base, and accommodates 33% of its jobs on only 3% of the municipal land area. Importantly, the job composition of the downtown is diverse, including a sizable institutional presence, which provides an element of economic resiliency. A strong economy in Toronto’s downtown is important not just for the City of Toronto, but also for Ontario. For these reasons, it is necessary that we develop the planning framework that will enable the downtown’s economy to achieve stable long-term prosperity.