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Despite global trade tensions and political uncertainty, the Canadian economy continued its strong performance in the third quarter of 2019.
The country added a whopping 81,100 new jobs in August, as the unemployment rate fell to 5.7%.
Strong job numbers coupled with a lack of new office supply means the country’s most in-demand office markets are tightening. Toronto and Vancouver continue to feel the pressure of record low vacancy rates, as companies struggle to secure a downtown office lease.
Montreal is also seeing its vacancy rates fall, as supply fails to keep up with a growing tech market and ongoing job boom.
Here are five graphs that explain how – and why – these markets are tightening.
While Canada’s overall Q3 vacancy rate sat at 11.0%, that number doesn’t do justice to the bigger picture. Though western markets like Calgary and Edmonton have vacancy rates of over 20.0%, Vancouver and Toronto have seen their rates drop to 2.4% and 2.3% respectively, making them the tightest office markets in North America. Secondary markets like Waterloo are also beginning to tighten, as excitement around the Toronto-Kitchener-Waterloo tech corridor grows.
New Supply Scarce
National new office supply hit its lowest level in years in the third quarter. New builds planned for delivery over the next five years in Toronto and Vancouver are receiving overwhelming attention, as they remain the only notable source of large blocks of premium space. Companies are having to scramble to secure the Class A buildings their employees have come to expect.
Vancouver Rents Spike
Metro Vancouver’s average class A net rent, already well above the national average, has been steeply climbing in recent quarters, as landlords take advantage of the tight conditions. While the national average hovers just under $20 psf, Vancouver’s topped $30 psf last quarter.
Tight Toronto Market
The Greater Toronto Area’s overall vacancy rate dropped to 6.8% in the third quarter, a number that hasn’t been seen since 2008. Meanwhile, new supply had been unable to contend with record demand from tech firms and flexible real estate operators, shrinking Toronto’s vacancy rate to 2.3%, the lowest in North America. Downtown Toronto’s 8.6 million sq. ft. of office construction is now nearly 75% pre-leased, posing a challenge for businesses hoping to expand their downtown presence in the coming year.
Montreal Heating Up
Low supply and high rents are pushing companies to seriously consider Canada’s other markets. Metro Montreal’s unemployment rate dropped to 6.0% in August, while vacancy rates for Class A and B product dropped to 7.0% and 8.1% respectively. While suburban spaces remain relatively available, competition has become fierce for the best downtown locations.