The Greater Toronto Area (GTA) faces a significant risk of office space oversupply until 2041 due to weakened post-pandemic demand, according to a new report released by NAIOP Greater Toronto.
The report, titled “Office Needs and Policy Directions in the GTA,” prepared by Altus Group, outlines various hybrid work scenarios and emphasizes the urgent need for government policies to address this impending oversupply.
The findings highlight the necessity of converting obsolete office buildings and reevaluating regional planning to adapt to changing work patterns and economic priorities.
Oversupply threat looms in the GTA
The report indicates that even with the most optimistic hybrid work scenario of employees spending four days a week in the office, there will still be a surplus of millions of square feet of office space until 2041.
The demand for new office space is expected to be significantly lower than pre-pandemic levels, with only 15 million square feet of new space required, approximately half the pace seen before COVID-19. Consequently, vacancy rates are projected to range from 16.5 per cent to a staggering 45.7 per cent.
“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.
Government intervention recommended
To effectively address the impending oversupply, the report strongly recommends that governments implement policies to facilitate and incentivize the conversion of functionally obsolete office buildings.
The current restrictions and prohibitions on converting or redeveloping existing office spaces into other uses should be immediately dismantled, the company says; it’s recommending a proactive approach will both alleviate the oversupply issue and address the GTA’s housing shortage.
Additionally, the report urges governments to adopt a regional approach to planning for future office needs. Given the anticipated oversupply, a reevaluation of the amount of land designated for employment purposes is necessary.
Achieving sector health and addressing housing shortage
“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.
Read the full report here.
