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Tech Sector Headwinds and Supply-Demand
Imbalance Pose Near-Term Challenges
Tech sector slowdown furthers uncertainty. Cautious optimism began to build in Toronto’s office market in the early parts of 2022. Net absorption turned positive for the first time in two years as leasing activity gained momentum amid aggressive tech sector expansion. Yet, rapid inflation and elevated interest rates caused leasing to stall over the latter half of the year as companies pushed back return-to-office mandates and evaluated their space needs. In the first quarter of 2023, Toronto saw nearly 2 million square feet of negative net absorption — a level not seen since early 2002. Sublet space also climbed for the fifth consecutive quarter, resulting in part from the continued downsizing of tech firms as rising borrowing costs curbed hiring and decreased company valuations. Toronto’s suburban office market, however, continues to fare slightly better as companies seek space closer to where their workers live in a bid to reduce commute times and cut costs. The region’s vacancy rate, as a result, has remained relatively more stable.