Canadian Office Markets See Green Shoots in the First Quarter

April 3, 2024 4 Minute Read


Spring is here and Canadian office markets are seeing green shoots and a  brightening outlook.

CBRE’s just-released Q1 Canada Office Figures show that it was a promising start to the year, with 439,000 sq. ft. of positive net absorption being recorded in the first quarter. This marks the first quarter of positive net office leasing activity at the national level since Q3 2022.  

It helped that no office projects broke ground during the first quarter, a first in years, giving markets a chance to catch their breath after a tumultuous post-pandemic period. The total amount of office space under construction nationally has fallen to 9.1 million sq. ft., the lowest level since 2011.

And the national office development pipeline is currently 54.0% pre-leased, with the most significant pre-leasing in buildings that are nearing completion.

Vancouver Absorbs, Toronto Softens

Vancouver – with Canada’s lowest office vacancy, at 10.9% in Q1 ­­– and Winnipeg were the only two markets to see a notable absorption of office space in the first quarter. Their success offset further softness in Toronto, which saw downtown vacancy rise to 18.0%.

Toronto and Montreal account for the bulk of remaining office construction activity in Canada, and these markets continue to face the greatest headwinds, logging consecutive quarters of negative net absorption. The other six markets (Calgary, Edmonton, Winnipeg, Waterloo Region, London, Ottawa) recorded muted leasing activity.

The first quarter also saw an influx of large spaces come available, driving the national downtown office vacancy rate to a new record 19.5%. Toronto and Vancouver felt the impact of WeWork space come back on the market.

Sublease Space Falls

The amount of sublease office space fell for a third consecutive quarter in Q1 to its lowest level since Q4 2022: 15.4 million sq. ft – equal to 3.2% of existing inventory.

Office-to-residential conversion projects continue to take shape; a total of 870,000 sq. ft. came out of competitive inventory in the first quarter of 2024 as 13 projects in eight markets moved forward. This has had a neutral impact on reducing national office vacancy, however. The average vintage of these buildings is 1985.

“While vacancy has continued to increase nationally, we are starting to see some green shoots in Canada’s downtown office markets,” notes CBRE Canada Chairman Paul Morassutti.

“In each of the last three quarters five of the 10 cities tracked recorded declining downtown vacancy on a quarterly basis. It doesn’t mean things have fully stabilized, but it offers some much-needed optimism for the heavily scrutinized office market.”

Five of the 10 cities tracked recorded declining downtown vacancy. It offers much-needed optimism for the office market. - Paul Morassutti

Industrial Availability Rises

The national industrial availability rate continued to rise and reached 3.7% in the first quarter, according to CBRE’s Q1 Canada Industrial Figures.

This marks the highest level of availability for the industrial market in almost six years, driven by delivery of new supply and a rise in sublease space in some markets.

Every industrial market saw availability rates rise on a year-over-year basis in the first quarter, except Edmonton, where availability decreased amid no new supply.

Toronto led the return of industrial space to the market with -2.1 million sq. ft. of absorption in Q1, the second consecutive quarter of negative net absorption for Toronto. This was followed by Montreal with -0.9 million sq. ft. of negative net absorption, its fifth consecutive quarter of negative net leasing activity.

Construction Eases

Industrial construction continued to ease in Q1, with the development pipeline contracting to 32.0 million sq. ft. Pre-leasing activity remains modest, with only 39.2% of space currently under construction having been spoken for as of Q1.

Only 4.7 million sq. ft. of new space started development in Q1. These starts were in Toronto and Vancouver, and mostly consisted of facilities 100,000 sq. ft. or larger. Every market aside from Halifax has less than 3.0% of its total industrial inventory currently under construction.

“It is far easier to turn off the supply taps in industrial than it is in the office market,” Morassutti says, noting that most of the Q1 deliveries of industrial space were large-bay facilities in Toronto, Vancouver, Calgary and Waterloo Region.

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