What commercial real estate looks like today: Multifamily and office leasing

Amid the uncertainty of the COVID-19 pandemic, the Toronto multifamily sector remains one of the most resilient areas in commercial real estate.

After a market freeze in March, pent-up demand resulted in investment volumes increasing above the five-year quarterly average to $540 million. Conversely, rental rates for condos decreased by 7.5%, with new purpose-built rentals declining by 2.4%. There are 72,053 purpose-built rental units proposed for the GTA—a 36% increase from a year ago. Year-to-date, the average price per suite is $276, 884.

However, the rental market is projected to soften in Q2-2021, and further a quarter later. The long-term forecast for the sector remains optimistic, but some landlords may have short-term challenges because utility costs have escalated since tenants spend more time at home now. As a whole, the multifamily sector is expected to thrive when immigration and employment return to normal levels.

Trends look different in the office market. More companies have chosen to sublease their office space as employees continue working from home. Few have returned to the office, and those that have are at reduced capacity. There has been a clear decline in office demand, but the value of asking rents has not yet been impacted. In fact, the Q3 average net asking rate in the GTA increased by 5% from Q2 to $21.53 per square foot.

Landlords have been more open to increased tenant inducements and shorter term lease, resulting in falling net effective rents.

Six months into the pandemic, tenants have relocated, downsized or decided to permanently work from home, which has contributed to the increased supply of sublet space in the GTA. Of the 1.8 million square feet of new sublet space listed since March, 64% is driven by downtown listings.

The downtown-west market represents the largest submarket, totalling 457,000 square feet—nearly double the amount listed in the financial district. Technology tenants dominate the volume of sublet space listed because they are able to quickly adapt to a remote working environments.

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