Vancouver Ties Toronto for North America’s Lowest Office Vacancy Rate

Record low availability is driving office and industrial rents to all-time highs

Vancouver and Toronto now share the title of North America's hottest office market. Vancouver’s office vacancy rate dropped to 2.6% in the second quarter of 2019, from 4.7% only a year ago, according to CBRE's Canada Q2 Quarterly Statistics Report. Toronto’s downtown office vacancy rate remained stable at 2.6% amid a construction boom in the city's core.

Record-low vacancy is producing record-high rental rates. Average Class A net asking rents in Toronto’s financial core crossed the $40.00 per sq. ft. (psf) threshold for the first time ever in Q2. As recently as two years ago these rates were seen mostly in Class AAA new builds. Vancouver’s average Class-A downtown office rents jumped to a record $44.00 psf in Q2, up from $42.02 psf a quarter earlier.

"Two years ago, it would have been unprecedented to have a Canadian city top the North American office rankings. We now have two Canadian cities setting the pace, which is truly remarkable," noted CBRE Canada Vice Chairman Paul Morassutti. "Something special is happening in this country and the investments being made by businesses and developers suggest that our office and industrial markets are well-positioned for the digital economy."

Elsewhere in the country, Ottawa's office vacancy dropped to 7.0% in Q2, down from 9.9% in the same quarter last year, owing to increased demand and limited new supply. Calgary’s downtown office vacancy rate continued its slow decline to 26.1% in Q2, down from all-time high of 27.8% a year ago.

On the industrial front, Toronto and Vancouver also have among the lowest availability rates in North America. Vancouver's industrial availability rate fell to 2.1% in Q2 2019, despite that market having had the largest amount of new supply delivered in a single quarter in over 10 years in Q2: 1.5 million sq. ft. This shows just how insatiable demand is for industrial space in that market. Toronto’s industrial availability rate has sat at a record-low 1.5% for the past two quarters.

Strong demand and low availability pushed average net rents for Vancouver industrial properties to $12.62 psf in Q2, a 1.3% quarter-over-quarter increase. In Toronto, average industrial net rents exceeded $8.00 psf for the first time in Q2. For context, Toronto industrial rents had remained between $4.00 and $6.00 psf for two decades, up until 2017.

In Montreal, availability of industrial product sits at half of what it was two years ago, dropping to 3.2% in Q2. And Waterloo Region has had five consecutive quarters of positive absorption, resulting in an all-time-low industrial availability rate of 1.6% in Q2, rivalling Toronto. Average net rents in that market have appreciated to a record-high $6.33 psf.

"Across the country the demand for industrial properties, from tenants and owners alike, has seemingly never been stronger," Morassutti said. "Third-party logistics, food and beverage and retail companies are snapping up space as the momentum of online retail sales continues to build."