Commercial real estate group warning of office space oversupply in GTA
May 24, 2023 By NAIOP
A new report released today by NAIOP Greater Toronto shows that given weak post-pandemic demand for office space there is a sharp risk of a significant oversupply in the Greater Toronto Area at least until 2041.
The report – Office Needs and Policy Directions in the GTA – was prepared by Altus Group and details three hybrid work scenarios: 2, 3 or 4 days a week that employees will spend on average in an office. In all but the four-day scenario there will be millions of square feet of surplus office space until 2041. Even in the four-day scenario only 15 million sq ft of new space would be required – about half of the pace of office demand seen prior to the pandemic. This translates into vacancy rates 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”, says Peter Norman, Vice President and Chief Economist at Altus Group.
Given the current oversupply, projects in the 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 immediately dismantle policies currently in place that restrict or forbid the conversion or redevelopment of existing office space into other uses. It 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. Many global urban centers are already addressing this challenge,” says NAIOP Greater Toronto President Christina Iacoucci.
“A significant economic development risk facing the GTA regional economy is the oversupply of office space. 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” said Iacoucci.
NAIOP Greater Toronto is the industry association for commercial real estate. NAIOP’s members are the owners, developers and managers and related industry advisors for the office, industrial, retail and mixed-use real estate industry across the Greater Toronto Area. NAIOP has over 1,200 members from 300 companies across the GTA. As part of its mandate, NAIOP undertakes policy work to assist governments as they respond to ever-changing economic challenges.
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