TORONTO Toronto’s downtown office market is showing renewed momentum, with leasing activity and absorption reaching notable levels even as rising rents encourage some companies to explore suburban locations across the Greater Toronto Area.
According to JLL Canada’s second-quarter Toronto Office Market Dynamics report, Urban Toronto recorded its strongest quarterly net absorption in a decade. The performance was supported by the delivery of CIBC Square II, which is fully leased, as well as 77 Wade Ave., Toronto’s first purpose-built science building, which is approximately half leased.
Office rents in the downtown core also continued to climb. Overall quarterly rents increased by 2%, while prestige or “trophy” buildings recorded a much sharper 6.4% quarter-over-quarter increase in net asking rents.
Downtown demand remains strong
Despite concerns about tenants moving away from the core, JLL says the broader data does not point to a widespread shift toward suburban offices.
Downtown Toronto’s vacancy rate fell from 19.6% to 16.4% over the past year, while suburban vacancy has remained relatively stable at approximately 18% to 19%.
“This suggests that suburbs have been holding steady but downtown has been extremely active,” said Scott Figler, JLL’s senior research and strategy director.
The continued demand for downtown space is being supported by factors including population density, access to major labour pools and the concentration of established business districts.
High rents create opportunities for suburbs
At the same time, premium downtown office rents have moved above $100 per square foot in some high-end buildings, while available space is becoming increasingly limited.
That environment is creating an opportunity for quality suburban properties to attract larger tenants seeking better value.
Suburban landlords have continued offering competitive incentives, including early access to premises for tenant fit-outs, while concessions have become less generous in the downtown market.
Institutional, construction and business services companies have been among the main sources of leasing activity, with relocation transactions accounting for a significant portion of demand.
Toyota Canada, for example, leased more than 91,000 square feet at 300 Consilium Place in Scarborough while its existing facility undergoes renovations.
The Workplace Safety and Insurance Board also relocated from a downtown west Toronto location and leased more than 77,000 square feet at Mississauga City Centre.
Northern GTA remains mixed
Office conditions vary across the Greater Toronto Area.
In the northern GTA, vacancy has declined from nearly 22% to 17.5% over the past two years. However, some submarkets remain under pressure. North Yonge has a vacancy rate of approximately 23%, while Richmond Hill stands at 24.2%.
Figler noted that suburban areas also benefit from established business parks stretching from Burlington to Mississauga and their proximity to the U.S., an important consideration for companies with cross-border operations.
Uncertainty surrounding the future renewal of the Canada-United States-Mexico Agreement (CUSMA) continues to weigh on some export-oriented companies.
However, other developments could support future commercial activity. Municipal zoning changes around approximately 120 transit stations are expected to encourage residential development along GO train corridors.
Recent changes to Canada’s internal free-trade framework could also strengthen the Greater Toronto Area’s role as a national hub for logistics and manufacturing companies operating across the country.
Southwestern Ontario sees leasing gains
JLL’s second-quarter report on southwestern Ontario also points to improving office activity.
Kitchener recorded 41,308 square feet of leasing activity, contributing to a total of 96,552 square feet across the Waterloo Region.
Guelph recorded another 27,317 square feet of leased office space, which JLL described as a strong result for a submarket of its size.
As in Toronto’s suburban market, leasing incentives are becoming increasingly important to landlords seeking to attract tenants.
Industrial market strengthens
JLL’s industrial reports for Toronto and southwestern Ontario also showed signs of improvement.
In Toronto, industrial vacancy declined to 4.8%, down from 4.9% in the first quarter, as available space continued to tighten and the large-bay segment recovered.
Space under construction rebounded to 12.7 million square feet, after falling earlier in the year to its lowest level since the second quarter of 2022.
Southwestern Ontario recorded an even sharper improvement. Vacancy and availability rates each declined by 70 basis points during the second quarter, representing their strongest improvement since 2022.
Net absorption reached 913,349 square feet.
Investment activity also remained strong. In Cambridge, investment holding company Pontegadea acquired 140 Old Mill Road, a fully leased Class A industrial distribution centre, for $326 million.
The combined office and industrial data suggests that while Toronto’s commercial real estate market continues to face structural changes, demand for well-located, high-quality space remains resilient across the GTA and southwestern Ontario.
