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Wellington St. West and on Bay St. in Toronto's Financial District on Jan. 13, 2021.Fred Lum/The Globe and Mail

Toronto’s downtown office vacancy rate hit 9.1 per cent in the first quarter of this year, as more businesses tried to get rid of their office space after months of work-from-home mandates.

The vacancy rate was nearly two percentage points higher than the fourth quarter of last year, marking the highest level since early 2008 when the global financial crisis led to a vacancy rate of 9.5 per cent, according to a new report from commercial real estate firm CBRE.

An increase in space available to sublet is driving the vacancy rate higher. Bay Street firms such as Mercer Canada, Citco and TMX Group , and dozens of others with offices in downtown Toronto, have been trying to sublease part of their existing space as a way to cut costs as the bulk of their office staff has been away from the office for nearly one year.

Through most of the pandemic, tenants have had to continually delay the return to the office as Toronto has remained largely in perpetual lockdowns. The slow vaccine rollout had initially given companies some assurance that office life would resume, but the city and the rest of the country are struggling to contain the spread of more contagious COVID-19 variants.

Over all, Canada’s office vacancy rate rose to 14.3 per cent in the first quarter, from 13 per cent in the fourth quarter, with almost every major city seeing more vacancies and sublets.

“The key question that we are all looking to address is, will 100 per cent come back or will there be an element of working from home and some flexibility. It still remains too early to address that question,” said Jon Ramscar, CBRE’s managing director for downtown Toronto.

Some companies, such as accounting firm PwC and Air Canada, have already made the decision to reduce space permanently. While others, like British-based financial services company Finastra, have decided to relocate to the suburbs.

Meanwhile, companies that have flourished during the pandemic, such as Shopify Inc. and Amazon.com Inc., are taking more space in downtown Toronto. Reddit Inc. recently announced plans for a small 10-person office in Toronto.

RioCan Real Estate Investment Trust, one of the country’s biggest retail landlords, is considering a flexible work arrangement, though has no plans to reduce its office square footage.

“We do believe the amount of office space will be the same,” RioCan chief executive Jonathan Gitlin said in a recent interview. He wants staff to have the option to work part of the week from home, though he said employees would continue to have their own desks. “I don’t subscribe to hoteling. I do like people to have a designated place where they can come in and feel comfortable,” he said.

Toronto’s office vacancy rate had been 2 per cent as recently as the first quarter of last year, and was the lowest level in Canada and the U.S. for a few years.

Now with all the uncertainty, landlords are more willing to sign tenants to shorter terms. “More and more we are seeing them open to having those discussions,” said Juana Ross, director of Toronto market research for commercial real estate firm Cushman & Wakefield.

Vancouver and Montreal saw their vacancy rate inch up to 6.2 per cent and 10.6 per cent, respectively. Ottawa’s rate was 10.7 per cent and the Waterloo region 15 per cent, according to CBRE. Edmonton was the only major office market to see a decline in the vacancy rate from the fourth quarter to the first.

Calgary’s office market hit a record high vacancy rate of 32.3 per cent, hurt by both the pandemic exodus and the lingering effects of the 2014 oil price collapse. The city had been hovering near 30 per cent prepandemic, with the energy sector slashing their office space as new office buildings were opening.

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