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**Change is Coming to Downtown Toronto’s Office Market**
Toronto’s office landscape is undergoing a significant transformation. Prior to the pandemic, the downtown office vacancy rate in Q4 2019 stood at a mere 1.1%. Fast forward to Q3 2025, and that number has increased substantially to 12.6%, according to data from Colliers.
But there’s a shift underway.
As corporate back-to-office mandates increase, companies are re-evaluating their space needs. However, this resurgence in demand isn’t evenly spread. Class AA and AAA office properties—especially those located near transit hubs, restaurants, and shopping—are seeing a surge in occupancy. In contrast, Class B buildings and those further from key amenities continue to struggle with elevated vacancy rates.
The demand for high-quality office space could soon outstrip supply. This presents an opportunity for owners of older and underperforming assets to invest in upgrades and attract new tenants.
### Where We Are Now
Hybrid and remote work models persist, but many businesses are pushing for more in-person attendance. Canada’s major banks are leading this charge. In May 2025, Royal Bank of Canada mandated a return to office four days per week, with Scotiabank and Bank of Montreal following shortly thereafter.
“The big banks are the standard setters, and we expect more companies to follow suit,” said Jonathan Olynick, Senior Managing Director with Colliers’ Brokerage group in Toronto.
Most of these financial institutions are based in the Financial District, benefiting from nearby amenities and transit. Many other downtown neighborhoods, however, lack that advantage. As commuting volumes rise, vehicle congestion is expected to worsen, making accessibility an increasingly critical consideration for tenants.
“Many new, well-located trophy offices in Toronto’s core are now seeing vacancy around 4%, a notably lower rate compared to last year’s numbers,” noted Olynick. “Meanwhile, there is tougher competition among landlords of alternative or older buildings to backfill departing tenants, as office occupiers find themselves with a myriad of options.”
### Solutions to Improve Occupancy
Property owners of aging and less centrally located buildings still have viable paths to relevance. While they can’t change a building’s physical location, they can take strategic actions to boost appeal and lease-up potential.
#### Ensure Turnkey Advantages
Chris Fyvie, Vice President with Colliers’ Office Leasing group in Toronto, emphasized the importance of turnkey readiness. In today’s market, tenants expect move-in-ready spaces with minimal renovation requirements.
“Occupiers aren’t just leasing space—they’re choosing proximity to transit, staff amenities, and operational ease,” said Fyvie. “In today’s market, location, employee incentives, and turnkey readiness aren’t perks—they’re prerequisites.”
#### Boost Bike Infrastructure
With increasing downtown congestion, some employees are opting to cycle part of their commute. Property owners can support this by offering secure bike racks, storage rooms, and amenities like showers, lockers, and even on-site bike repair stations. Partnering with bike-sharing services to offer tenant discounts can also be an appealing incentive.
#### Offer Shuttle Services
Building owners can improve transit access by partnering with local transportation providers to offer free shuttles between subway or GO Transit stations and their properties. This can be an attractive perk for tenants, particularly during rush hours. Discounts on ride-sharing services can also help support last-mile transit needs.
#### Fill Space with Service Amenities
Creating a well-rounded convenience ecosystem inside or adjacent to office properties boosts tenant satisfaction. On-site amenities such as fitness centers, yoga studios, dry cleaning, food outlets, and grocery services not only attract tenants but also make offices more functional.
“Buildings that either include, or are connected to, a functional, convenient array of shopping, dining and necessity retail tend to attract good tenants,” Olynick added. “Moreover, having attractive, accessible and comfortable green outdoor spaces that promote relaxation and wellness should be prioritized.”
### Positioning Buildings for Success
Not every property in Toronto’s downtown core stands on equal footing. Within the city’s 16.6-square-kilometre urban core, office assets vary greatly in class, condition, and location. But with smart capital planning and attention to evolving tenant needs, even older, lower-tier buildings can position themselves for success.
As premium office space becomes increasingly scarce, upgrading and repositioning existing assets could turn today’s vacancy challenges into tomorrow’s leasing opportunities.
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