GTA commercial real-estate market potentially over-supplied through 2041
A new report prepared for Toronto’s commercial real-estate development association finds that the city’s office market is significantly oversupplied with space – and may remain so until the early 2040s at least.
The report, Office Needs and Policy Directions in the GTA, was prepared by Altus Group for NAIOP Greater Toronto. It details three scenarios in which office employees return to work on a hybrid basis – for two days a week, three days a week, and four days a week.
In all but the four-day scenario, the report suggests there will be millions of square feet of surplus office space until 2041. Even in the four-day scenario only 15 million square feet of new space would be required to accommodate growth. That figure is about half of the pace of office demand seen prior to the pandemic.
The findings translate into vacancy rates of between 16.5% and 45.7%.
"The pandemic changed business operations in ways that appear to be permanent – an increase in hybrid working models that lower the amount of space needed per employee," said Peter Norman, Vice President and Chief Economist at Altus Group.
Given these findings, combined with projects currently in the region’s development pipeline, and the weak projected demand for new office space, the report recommends that governments put policies in place to facilitate and incentivize the conversion of functionally obsolete office buildings, and reverse any existing policies that restrict or forbid conversion or redevelopment.
The report also advises that governments should take a regional approach to planning for future office needs and re-evaluate the amount of lands designated for employment given this oversupply.
"As an association representing office building interests, it is unusual for us to recommend policies that would result in less office space. However, with a likely significant oversupply of office space lasting potentially for decades, governments need to respond to changing work patterns and economic priorities," said NAIOP Greater Toronto President Christina Iacoucci. "By pruning older obsolete buildings through conversion and planning flexibility, we can foster the overall sector's health and help address the housing shortage in the region.”
NAIOP Greater Toronto represents more than 1,200 owners, developers and managers and related industry advisors for the office, industrial, retail and mixed-use real estate industry across the Greater Toronto Area.