Leasing strength boosts absorption, fuelling wider market resurgence
The Toronto office market showed signs of resilience in the first quarter of 2025, buoyed by strong leasing activity early in the year.
According to new reports from CBRE and Avison Young, Downtown Toronto’s overall vacancy rate dropped by 50 basis points quarter-over-quarter to 18.0% in Q1 2025, a notable improvement amid broader economic uncertainty.
CBRE noted that net positive absorption of 261,999 square feet helped drive the vacancy rate down. Additionally, sublease vacancy as a share of overall vacancy dropped by 250 basis points to 18.7%, suggesting growing confidence among occupiers despite continued cost-conscious strategies.
Demand for trophy assets remained robust, particularly on higher floors. The Class AAA market posted positive net absorption of 67,427 square feet in the first quarter, bringing the AAA vacancy rate down to 7.3%.
CBRE highlighted that despite the austere attitudes many companies have adopted, the trophy asset class has consistently "witnessed transactional activity, particularly in the higher floors."
Overall, weighted average asking net rents in Downtown Toronto surged in Q1 2025, ending the quarter at $35.90 per square foot, an increase of $0.96 or 2.7% quarter-over-quarter. This marks the highest net rent level in seven quarters.
CBRE also noted that while inducements remain prevalent across downtown assets, Class AAA net effective rents are beginning to climb in response to strong demand in the trophy segment.
“These are all positive signs for the downtown market, and stakeholders will be eager to see whether the trends can be continued in Q2 amid ongoing economic uncertainty,” Avison Young said in its report.
Early lease renewals
The downtown office market has seen a flurry of early lease renewals, where tenants are renewing or extending leases years ahead of scheduled expirations.
“This approach can offer advantages for both tenants and landlords,” Avison Young explained. “Tenants may aim to benefit from current market conditions, as the lack of major construction activity means that vacancy in top-quality buildings is expected to tighten in the coming years. Meanwhile, landlords can seek to stabilize their portfolios for the longer-term future by securing these large tenants well in advance.”
No new office buildings were completed in Downtown Toronto during the quarter. With no additional projects announced, only three projects totaling just under 2 million square feet remain under construction. Of that, CIBC Square Phase II alone accounts for 74% of the total pipeline, at 1.4 million square feet.
Read more: Tariff confusion freezes Canadian office projects – Avison Young
Sublease and direct space decline
Across the Greater Toronto Area (GTA), broader trends also pointed to some stabilization. Data from Avison Young revealed that the overall availability rate fell 70 basis points to 20.5% during the first quarter — although this was still up 60 basis points year-over-year.
However, the overall vacancy rate rose slightly by 10 basis points quarter-over-quarter and 190 basis points year-over-year to 17.2%. Net absorption for the quarter was negative, with occupied area across the GTA decreasing by 225,800 square feet. Losses were concentrated primarily in Class B (-215,600 sf) and Trophy buildings (-57,200 sf), while Class A remained relatively stable (-4,400 sf) and Class C posted a net gain of 51,500 sf.
On a positive note, the amount of sublease space available across the GTA declined to just under 6.3 million square feet, and direct available space fell by nearly half a million square feet to 30.3 million square feet. Avison Young emphasized that this marks only the second quarter since 2019 where direct availability declined quarter-over-quarter.
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