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How can we measure the impact of the work-from-home trend on the future of office development in Toronto?
While much of the media coverage focuses on the high vacancy rates in longstanding office buildings in the downtown core, UrbanToronto offers a long-term perspective. We are particularly interested in how developers of new office spaces are responding to current market trends. Are they treating these trends as temporary, or are they anticipating that remote work is here to stay?
At UrbanToronto, we specialize in quantifying development application data, boasting an extensive database that tracks over 5,200 projects across various stages of construction—from initial proposals and architectural plans through to approvals, appeals, construction, and completion. In this article, we will analyze data on the proposed and approved Gross Floor Area (GFA, the sum of the floor area for both above ground and underground floors, measured from the exterior walls) of office space applications submitted to the City of Toronto from 2018 to the end of the second quarter of 2024.
Nearly four years after the first COVID-19 stay-at-home orders, the data is clear: developers are proposing less office space than ever before. While overall development activity is also declining, the proportion of new office space in all new proposals is plummeting. This trend suggests that developers are not persuaded by efforts from businesses and politicians to encourage workers to return to the office.
Figure 1 below shows the current state of the office development pipeline. As of June 30th, 2024, there is over 47 million square feet of office space either under construction or in some stage of pre-construction. However, there is also 651 million square feet of non-office GFA also proposed or under construction. That means that office space only makes up roughly 7% of the total floor area that developers are working on.
This naturally raises the questions of whether this is in line with historical norms or not. Figure 2 begins the investigation. As a proportion of all new development applications, the proportion proposing any new office space (including anything from a tiny family office space at grade, or a huge dedicated office tower) has been steadily declining. 2018 saw a high of 27% of all applications including an office portion, while so far in the first half of 2024 only 9% of applications proposed any office space at all.
In Figure 3, the bloodbath is most apparent. We can see that prior to 2023, the proposed square footage of new office space was measured in the millions. However, in 2023, roughly half a million square feet were proposed—a drop of nearly 80%. And in the first two quarters of 2024, Toronto developers have only proposed a mere 90,500 square feet of new office space. This is a struggling market.
In 2019, the last year before any Covid disturbances took effect, the proportion of office GFA to total GFA proposed that year was 10.7%. This was a big jump from the 9.9% of office GFA relative to total GFA proposed in 2018. What might the office environment look like if Covid never happened, but a recession still forced interest rates higher? By assuming that each subsequent year (2020, 2021, 2022, 2023, and 2024) would also see 10.7% of total GFA be designated for office use, perhaps we could have seen up to an additional 2.6 million square feet of new office space proposed.
In conclusion, the data clearly spells a lack of desire to develop new offices in Toronto. While the total number of new applications is down, the proportion proposing new office developments is down even more sharply—from 28% of all projects in 2018 to 9% today. This has resulted in millions of square feet of missing office floor area.
Simultaneously, the City of Toronto is considering to eliminate its long-standing "office replacement" policy. Under this rule, any new development on a site that already has offices, must preserve the same office space. Now, the City is considering doing away with this rule entirely. This would mean that there will be even less office space if current market trends continue, as new condos replace old offices.
However, this doesn't have to mean all bad news for those in the business. If the politicians and big office owners succeed in convincing more workers to return to the office, then the dearth of new supply in the pipeline could mean offices filling up faster than expected. This would mean higher than usual rents accruing to landlords. The only question, then, is how persuasive are the return-to-office advocates being?
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UrbanToronto research and data service, UrbanToronto Pro, provides comprehensive data on construction projects in the Greater Toronto-Hamilton Area—from proposal through to completion. We also offer Instant Reports, downloadable snapshots based on location, and a daily subscription newsletter, New Development Insider, that tracks projects from initial application.
