The high interest rates and financial difficulties of 2023 are expected to ease and bring change to a few industries in Toronto this year, including the commercial real estate sector, which is still floundering amid record low vacancy.

Parallelling a housing market that saw shockingly few sales last year, the city's office market saw a substantial 15 per cent drop in leasing activity compared to 2022, with a glut of space expected to sit empty until the 2040s at the current rate.

While experts at commercial real estate company CBRE say in a new report that the city's office towers "continue to face challenges with vacancy reaching new highs," they are expecting — or, like residential realtors, just hoping — that things will turn around in 2024.

Big picture, talented professionals are leaving Toronto and Canada, many of them use to work downtown. I assume some businesses are also relocating away from downtown due to costs. Sad times when the cost of living and quality of life is horrendous. Buckle up.

— S Costa (@My_FairLady) January 10, 2024

The firm says that there are not yet any plans for new office development starts this year, which means that only some five million square feet of new space already in progress will become available — an indication of a "fundamental shift" in office work to a hybrid model post-COVID.

"Companies won’t be leasing more space than they had before... [but] rising confidence and employment could boost office occupancy in 2024," they forecast.

"After declining more than 15 per cent last year versus a year earlier, commercial real estate investment activity will recover in 2024 as credit conditions return to normal and investors get better access to capital."

CBRE also predicts that modern, quality space with exceptional amenities — like the Well — will continue to draw companies, while older buildings are increasingly left behind. "Many landlords will look to capital improvements to support the long-term appeal of their assets. But in many cases a more comprehensive re-think may be required," they write.

This re-think may include the conversion of lower quality office space into housing, though brokers note it is "not always feasible to convert these buildings into residential, and in many cases, it is cheaper to do new construction."

So you’re suggesting they take a ‘loss’ for the greater good?
Converting commercial RE to residential would take years and be hampered by city planning unfortunately. It, however, needs to be explored and fast tracked.

— Capricorn7 (@Caprico47634524) July 6, 2023

Meanwhile, non-office commercial real estate is still booming, such as the retail and food and beverge sectors, which have ongoing positive momentum despite customers spending less. Many new brands in this area are on deck to enter the Canadian market for the first time in the coming months.

Industrial spaces, though, appear to be less in demand lately, and will continue to be through 2024 due to "weaker economic conditions."

I was in a bank on front Street , after the pandemic we started working from home and eventually the bank (its a big one) had renewed only 45% of the lease !! Also nobody wants to travel there,subway is becoming riskier every day. Some moved out of Torinto.

— DeConditioned (@DConditioned) October 9, 2023

"2024 will not be an easy year, and there are challenges ahead. Liquidity is still a mixed bag and it is too early to call for a dramatic real estate recovery," CBRE says. "But the conditions for a recovery are in place, particularly within the capital markets."