Toronto Office Market Tightens as Landlords Scale Back Incentives

Power is starting to shift away from office tenants and back to landlords in downtown Toronto as demand for space accelerates.

 

Toronto office tower landlords are reducing the host of valuable incentives they had been offering for years to lure tenants to empty offices, including several months of free rent and extra cash to build out empty space.

 

“We are seeing tangible improvements,” said Michael Cooper, chief executive of Dream Office REIT, which has 16 office buildings in the city’s core. “It’s encouraging.”

 

It is a sharp turnaround from a year ago, when tenants had a plethora of options and were being wooed by brokers and landlords. The availability rate of downtown office buildings – the amount of space that is being marketed and available for lease – dropped to 17.7 per cent in September, according to data from Altus Group, down from 20.4 per cent in the third quarter of last year.

 

Early in the COVID-19 pandemic, when tenants were racing to get rid of space, demand remained robust for the newest buildings, such as the recently built CIBC Square property, which has the latest amenities and is close to Toronto’s main commuter train station. But older office towers had relatively higher availability rates, including the striking red granite Scotia Plaza and prominent Commerce Court.

 

Now that some of the largest employers are mandating staff back in the office, more buildings in the financial sector are becoming coveted again. That includes Scotia Plaza and the Toronto-Dominion Centre set of black-clad buildings.

 

“The worm has turned,” said Max Rosenfeld, head of asset management at Crestpoint Real Estate Investments Ltd., which recently refurbished its 25-storey office tower in the heart of the financial district and renamed it Roserock, in part to reflect the pink granite in the walls.

 

 

Early in the pandemic, landlords used incentives to attract and retain tenants. They didn’t drastically reduce rents to acquire and keep tenants, and that helped keep the value of their buildings high.

 

Today, landlords don’t have to offer rich incentives. Net effective rents – asking rents minus all the incentives – are on the rise again. The average net effective rent for the second quarter ended in June was $30.50 per square foot for the top office towers in the financial district, according to data from Altus. That was up 20 per cent from $25.33 in the same period in 2024.

 

“It’s a significant change,” said Raymond Wong, Altus’s vice-president of data solutions.

 

At Roserock, Mr. Rosenfeld said he noticed that the market was starting to turn when more tenants started to tour his office tower. He said Roserock has reduced incentives and its asking rents have increased 5 to 10 per cent over the past year.

 

Cadillac Fairview, which owns several top skyscrapers in the city, is also seeing more demand.

 

“We can confirm that demand for premier, well-located office towers with modern amenities and strong access to transit is increasing,” said Scott Pennock, senior vice-president of office for the pension-fund-owned real estate company.

 

“Companies are being selective, and we’re seeing an upward pressure on rental rates in the high-end segment,” he said in an e-mailed statement.

 

Brookfield Properties said its premier office portfolio in downtown Toronto is 98 per cent occupied. That includes older skyscrapers Brookfield Place and First Canadian Place, along with the newer Bay Adelaide Centre.

 

Matt Whitty, Brookfield Properties’ senior vice-president of Toronto office leasing, said rent “has accelerated in 2025″ due to more demand and limited supply.

 

Two big Canadian banks – Royal Bank of Canada and Bank of Nova Scotia – have told their staff they are searching for more office space to help address the lack of workspace, The Globe and Mail has previously reported.

 

Scotiabank issued a request for proposal to lease 850,000 to one million square feet of office space, according to two sources. The Globe is not naming them because they are not authorized to discuss the matter publicly. RBC recently hired commercial real estate firm CBRE to work on its real estate, the firm confirmed.

 

Spokespeople for the two banks declined to comment.

 

Those two banks, along with Bank of Montreal and Toronto-Dominion Bank, are requiring staff to be back in the office four days a week this fall. Other employers, such as the Ontario government and Rogers Communications Inc., are moving to five days a week in the office in the new year.

 

Stan Krawitz, who has brokered leases for office tenants in Toronto for 35 years, said he has not seen a market change this quickly. “Landlords are attempting to raise the price midway through negotiations,” said Mr. Krawitz, a senior vice-president with the Avison Young commercial real estate firm.

 

Mr. Krawitz is advising his clients in the downtown core to negotiate their office leases sooner rather than later because rent is rising.

 

Blaney McMurtry LLP’s managing partner, Shawn Wolfson, considers it good timing that his law firm started its search for new office space in mid-2023, when tenants had the upper hand. At the time, brokers found about 30 potential options in the financial district, according to Mr. Wolfson. A decade ago, when Blaney was on the market for a new lease, brokers presented the firm with just five options.

 

At the end of last year, Mr. Wolfson said his firm signed a new 10-year lease for three floors in Scotia Plaza, where the landlord will pay for part of a renovation.

 

Mr. Wolfson said that renovation was done in part to improve the office for the firm’s employees, elevate its brand and be within “the crux of the downtown core.” He said the 285 employees will each have their own desk and are now required to be in the office three days a week.

 

Fidelity Investments Canada ULC recently signed a large lease in Cadillac Fairview’s TD Centre and will move into seven floors next year, amounting to about 150,000 square feet.

 

Interac Corp. recently signed a new lease for more space at Brookfield’s First Canadian Place. The new space is nearly 50 per cent larger than Interac’s current office and was brokered to accommodate an expansion in the company’s work force. Earlier this year, employees were required to be in the office at least three days a week.

 

“This expansion gives us the room to grow, collaborate and innovate in one of Toronto’s most iconic business addresses,” Sudha Dwivedi, Interac’s group head of people and culture, said in a statement.

 

Interac said it has no plans to increase the number of days in the office.

 

Dream Office’s Mr. Cooper said he has noticed “a real change” in the market. “Tenants think they should get a deal done sooner than later,” he said.

 

 

 

 

This article was first reported by The Globe and Mail