Toronto’s class-AAA office segment is thriving and a recent event organized by Deloitte and Urban Land Institute Toronto at Deloitte’s downtown Toronto office looked at how it’s impacting the Greater Toronto Area’s overall market.

While the office vacancy rate in Toronto’s downtown core is about nine per cent, the vacancy rate for class-AAA space is one-third of that.

“The office market is shifting beyond a traditional workspace to a more collaborative environment,” Deloitte senior manager Maria Ashfaq said to kick off the event in a conversation with Weston Consulting president Ryan Guetter. “The strong comeback of the AAA office market could possibly have a ripple effect on class-B product.”

Guetter provided a land-use planning and policy perspective, beginning with the easing of office replacement rules and restrictions on building conversions.

“There's a significant amount of market guidance that will enable how the market responds and how office developments respond,” Guetter noted. “In the peripheral areas of the suburban GTA, you're seeing entitlements where the old stock of office buildings are being repurposed and re-entitled for full mixed-use with less office and more flexibility in the permissions.”  

It’s generally easier to completely redevelop an older and less desirable office building than to repurpose it, according to Guetter.

Ashfaq said Toronto’s core is an employment hub with less residential and mixed-use development than cities such as Paris, New York and Vancouver. She cited The Well as one successful downtown Toronto mixed-use development that’s changing that trend.

“There's no question that the more mixture of live, work and play in the core, the better,” Guetter said. 

Toronto office market overview

Deloitte partner and national real estate and tangible assets valuation leader Prakash Venkat followed up by offering an overview of the Toronto office market.

There’s a definite flight to quality, as capitalization rates and vacancies for trophy downtown buildings have decreased while suburban class-B and -C buildings have experienced flat or increased cap rates and increased vacancy rates. 

With the strong demand for trophy assets outpacing supply, rents have increased for the first time in a long while and landlords are being more selective in offering incentives.

Values for class-A to -AAA office buildings increased from $625 per square foot in 2023 to $765 per square foot in 2025. The corresponding values for class-B and -C office buildings rose at a much slower pace — from $589 to $595.

Return to office has spurred leasing

Venkat then moderated a discussion that also included GWL Realty Advisors (GWLRA) executive vice-president of portfolio management Steven Marino and Oxford Properties VP of asset management Michael Mayville.

“Monday to Thursday occupancy levels in downtown offices are now more than 85 to 90 per cent, and as high as 96 per cent on Wednesday,” Marino said. 

“Some of the tenants who led the contraction of office space in the early days of COVID, namely banks who gave back meaningful blocks of space, have now recognized that they’re grossly undersupplied in office space and are now the ones who are expanding this ferocious appetite and leading the way with new demand.”

Not only has this resulted in a substantial amount of downtown core office leasing activity, but the pace of getting lease deals done has picked up significantly. Companies want to be downtown because that’s where they can find the biggest talent pool.

Downtown office buildings also require less parking than suburban counterparts. Marino said underground parking costs in the neighbourhood of $200 per square foot, so eliminating much of that can result in major cost savings.

Oxford’s office buildings are centrally located in major Canadian cities and Mayville said 95 per cent of its space is either occupied or committed to be occupied. But that didn’t come without an effort to add amenities and improve the buildings.

Better buildings get higher rents

“In today's market, it's about (leasing) rate courage,” Mayville explained. “As an asset manager, I'm telling my leasing team that if it's a class-A building, the rates have to start with a four. If it's a AA building, the rates have to start with a five. If it's a AAA building, the rates have to start with a six. 

“I don't want to see deals that don't fit that criteria because, in my opinion, that’s where the market is. When you improve your buildings and you create something that tenants are demanding, then I think you’re in line with their expectations.”

While it has been balanced by stronger performances in other asset classes, Marino said GWLRA’s office portfolio is valued 50 per cent lower than it was five years ago. But he can take a positive as opposed to a negative view of that.

“As we look forward, I think office represents the best set of opportunities in our portfolio to invest capital and participate in the office recovery,” he said.

Marino cited newly completed improvements GWLRA made at 33 Yonge St. and ongoing work at One Adelaide to make them more attractive to tenants.

More good news for quality office product is that lenders have returned to finance improvements after avoiding the asset class earlier in the decade.