Canadian Office Market Awaits Rebound in Tenant Demand

Toronto – October 14, 2015 – While the Canadian economy is growing again following a shallow technical recession, the Canadian office market has yet to experience a rebound in tenant demand. CBRE Limited’s National Office and Industrial Third Quarter 2015 Statistical Summary reflects the uneven performance of the Canadian economy and the steady rise of Canadian office vacancy rates.

"If you only looked at the national office vacancy rate, you might think that this ‘recession’ had more serious implications for the Canadian economy than the Global Financial Crisis in 2008. The national office vacancy rate has risen fairly consistently since 2012 and the truth of the matter is that the office leasing environment is both better and worse than most think," said Paul Morassutti, Executive Managing Director for CBRE Limited.

"Demand for office space is very healthy in Toronto and Vancouver, while a flood of sublets and energy sector contractions continue to impact leasing fundamentals in Calgary and Edmonton. But overall, the underlying multi-year, national trend has been relatively soft office leasing activity and a supply pipeline that is more in tune with the availability of cheap capital than it is with the demand for office space. Absent a shut-off of the supply pipeline or an increase in tenant demand, vacancy rates could continue to increase and remain elevated for an extended period."

The Canadian downtown office vacancy rate rose 10 bps in the third quarter to 9.4%, the highest rate since the second quarter of 2005. In the U.S., the national downtown office vacancy rate has fallen fairly consistently since 2010 and reached 10.6% in the second quarter of 2015. The 120 bps spread between the U.S. and Canadian downtown vacancy rates, is the smallest in over a decade.

Calgary and Edmonton have certainly contributed to increasing vacancy rates in Canada during the third quarter, with downtown office vacancy rising 100 bps to 14.0% and 60 bps to 10.5%, respectively; however seven of the ten largest downtown office markets in the country now have vacancy rates in excess of 10.0%. The 10.0% threshold does not delineate between healthy and challenged office markets, but historically, this is not common territory for Canada’s downtown office markets. With an additional 11.2 million sq. ft. of office space under construction in downtown markets across Canada and 6.4 million sq. ft. being built in the suburbs, vacancy rates are likely to remain above historical averages for the foreseeable future.

Downtown Toronto and Vancouver continue to outperform with only 5.4% and 8.9% vacancy, respectively. Over 575,000 sq. ft. of net office leasing was completed in downtown Toronto in the third quarter, the most of any downtown office market. Vacancy was on the rise in Ottawa and Montreal, as downtown vacancy hit 9.3% and 10.8%, respectively. In Ottawa’s case, this is the highest downtown vacancy rate on record. Asking office rents dropped in most markets, reflecting softer demand as a result of uneven economic growth.

"There is no question that Canadian office fundamentals continue to stack up well compared to other global markets, but the persistent increase in office vacancy nationally is worth noting at this point," said Ross Moore, Director of Research for CBRE​. "Canadian commercial real estate has had a great run as our approach to development has been prudent. To break from this recipe for success would be unfortunate. It’s as simple as maintaining a strong relationship between supply and demand."

The industrial market​, which is known to trend more closely in line with economic growth, has largely exhibited stability. The national industrial availability rate rose 10 bps to 5.6% this quarter. Calgary’s industrial market has been performing well due to its increasing role as a distribution hub. Calgary’s industrial availability rate fell 30 bps to 5.9%. The Toronto industrial market continues to excel with a 4.1% availability rate, the lowest in North America, and asking rents that climbed to an average $5.33 per sq. ft. this quarter.

"Canadian industrial market fundamentals continue to be very strong, although we have yet to see a significant
increase in demand as a result of a more favourable foreign exchange rate and surge in manufacturing activity," said Moore. "Industrial construction is less speculative than it is in the office market. As a result, the industrial market is moving in step with the economy and landlords are being rewarded with low availability rates and rising rents."

The Vancouver industrial availability rate dropped 30 bps to 5.9% this quarter and the city boasts the second highest average industrial rental rates in the country at $8.26 per sq. ft. Occupied space is poised to increase 5.0 million sq. ft. in 2015, a record for metro Vancouver. Over 5.7 million sq. ft. of industrial space is under construction in Vancouver, the largest amount since 2008.

About CBRE Limited
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at

In Canada, CBRE Limited employs approximately 2,079 people in 23 locations from coast to coast.