Office vacancies edge up slightly, but signs of a stabilizing market emerge across major Canadian cities
In the second quarter of 2024, Canadian office vacancies experienced a slight increase, marking a national vacancy rate of 18.5%. Despite this uptick, data from CBRE indicates potential stabilization across major downtown markets, including Toronto, Ottawa, and Montreal.
Toronto maintained an office vacancy rate of 18.1%, with CBRE noting this consistency as a positive indicator for the latter half of the year. Conversely, Vancouver saw a rise in its vacancy rate to 9.7%, though the forecast appears optimistic given a slowdown in new office projects and a pivot towards residential or hotel developments.
The quarter also recorded the first consecutive positive net absorption since 2020, suggesting a growing trend of leased space outpacing new availability. However, CBRE remains cautious about future prospects, predicting a slight increase in vacancies due to a 39.5% pre-lease rate of anticipated new deliveries in the coming months. Downtown Toronto is expected to bear the brunt of this impact.
A significant factor contributing to the current state of office vacancies is the decline in new constructions. This quarter saw only 5.7 million square feet of office space being developed, the lowest since 2005 and well below the decade's average of 14.6 million square feet. Notably, Toronto and Vancouver are the only cities with significant construction activities exceeding one million square feet, predominantly located in Toronto’s downtown and Vancouver’s suburbs.
Smaller markets such as Ottawa, Calgary, Halifax, Waterloo Region, and Winnipeg are witnessing construction below 75,000 square feet, reflecting the current tenant demand and limited ongoing projects.
Despite efforts to convert office spaces to residential units to mitigate both vacancy rates and the housing crisis, these conversions have made minimal impact on commercial vacancy levels this quarter, with less than one million square feet of office space being repurposed.
The report concludes by highlighting that while there is a hopeful sign of market stabilization, challenges remain that could influence future vacancy trends.
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