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4 Things to Know About Canadian Office Demand in Q3
October 13, 2022 4 Minute Read
Canadian office markets continued to gather momentum in the third quarter of 2022, with CBRE’s new Q3 Figures report offering evidence of strengthening in downtown centres amid renewed demand for high-quality office space.
“Canadian office markets have been remarkably resilient despite enduring years of pandemic-related challenges, new supply additions and ongoing remote work issues, as well as a pending economic slowdown,” CBRE Vice Chairman Paul Morassutti notes.
“These latest figures offer compelling evidence that energy and momentum are returning to our cities and helping to bolster leasing activity. Although all eyes are focused on the economy, which is proving more difficult than usual to predict.”
1. Big Lease Deals Keep National Downtown Vacancy Steady
While Canada’s overall national office vacancy rate didn’t budge from last quarter, 16.9%, companies continue to seek quality downtown spaces.
In Calgary, India-based IT provider Mphasis selected First Tower as the home for its new 26,160 sq. ft. Canadian HQ. In Vancouver, Microsoft completed a deal for approximately 400,000 sq. ft. at the under construction B6 (1090 W Pender Street).
Meanwhile, Toronto saw medical tech provider PointClickCare expand its footprint in the city, taking 90,000 sq. ft. over three floors at The Well, one of that city’s most high-profile new developments.
Seven out of Canada’s ten major office markets observed a decrease in downtown vacancy in Q3, while five saw reductions in suburban vacancy. The true MVPs of the quarter were Calgary, Waterloo Region and Vancouver – all three saw both their downtown and suburban office vacancy rates decrease amid a wave of leasing deals.
Canadian market vacancy rates remain low compared to major U.S. markets. Vancouver (7.1%), Ottawa (11.5%) and Toronto (11.8%) enjoyed some of the lowest vacancy rates in North America, compared to Manhattan (17.3%), Dallas (24%) and San Francisco (24%).
2. Employees Return to Office
As companies continue to navigate the complexities of hybrid work, many have started introducing guidelines for employees to return to the office. These vary, with some companies mandating in-office presence on certain days while others have taken a more laissez-faire approach, offering general recommendations to employees.
Having spent the first half of 2022 in a tight labour market, in which the relative scarcity of available talent gave job seekers more power in negotiating work arrangements, the pendulum seems to be swinging towards a balanced position that favours hybrid work arrangements.
3. Office Quality is More Important Than Ever
The bifurcation in the office market intensified in the third quarter, as companies continue to demonstrate a preference for high quality, ESG-friendly, amenitized spaces to draw employees back to the workplace.
Demand for quality space has kept downtown Class A vacancy around or under 10.0% in select markets, including Vancouver (6.7%), Ottawa (8.0%) and Toronto (10.2%).
Downtown Class B buildings are losing their appeal, however, and landlords of these older assets face increasing pressure to retrofit them to meet modern office standards in order to retain tenants.
In downtown Toronto, pre-2010 builds have an average vacancy of 13.2% while post-2010 inventory, most often classified as Class A buildings, stands at a 4.4% vacancy rate, with Class AAA buildings boasting 3.7% vacancy.
This bifurcation was not observed in the suburbs; both Class A and Class B suburban assets had a 16.4% national vacancy rate.
4. Strong Pre-Leasing Shows Belief in the Future of Office Space
Overall pre-leasing activity remained vigorous in the third quarter, indicating robust demand for modern office spaces. The national development pipeline, totaling 12.7 million sq. ft., is 54.0% pre-leased.
In Vancouver, 83.8% of all space currently under construction in the downtown core is already pre-leased. In Toronto, a significant portion of the 1.9 million sq. ft. of new supply under development has been pre-leased, while Halifax is seeing major deliveries such as Armour Group’s Westway IV reach 90.3% pre-leasing.
The office market is expected to continue along the road to recovery in the fourth quarter. Watch this space for the latest updates.
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