Canada Office Figures Q1 2025

Executive Summary

• National net absorption remained in negative territory for a third quarter, however, the magnitude was relatively flat compared to prior quarters with seven markets reporting under 100,000 sq. ft. of absorption, either positive or negative.
• Downtown vacancy decreased for the first time since Q1 2020. Five cities noted improved conditions, with the greatest tightening in Winnipeg and Vancouver. Trophy and Class A product continues to be the most in-demand; trophy vacancy has averaged 11.0% over the last two years.
• Sublets have fallen to their lowest level since Q3 2020, currently down 20.2% from peak in Q2 2023. On a year-over-year basis, all but three markets are reporting lower sublet vacancy.
• Construction activity continues to thin with only one project completion in Q1 and no starts. Over a third of the remaining pipeline is part of mixed-use developments that offer a combination of residential and/or retail space.
• Over 587,000 sq. ft. of space came out of inventory in Q1 for conversion in Montreal, Edmonton and Calgary with an overall 10 bps impact on vacancy.

Muted start to the year in majority of markets

National net absorption remained in negative territory for a third quarter, however, the magnitude was relatively flat compared to prior quarters and had an effectively neutral impact on the overall market.

Muted activity was noted at the start of 2025 across seven markets, each reporting less than 100,000 sq. ft. of net absorption, either positive or negative.

The streak of positive net absorption has ended in Calgary and Edmonton, both posting negative net absorption for the first time in seven and six quarters, respectively. Calgary in particular was impacted downtown by the exit of Chevron from the market.

Softer market conditions were additionally noted in Montreal and Ottawa, the former of which had an influx of sublet space enter the market this quarter.

Vancouver was the only city to post significant positive net absorption, driven by activity in trophy buildings. 

Trophy buildings continue to outperform

Trophy and Class A office assets continue to outperform the remainder of the downtown market with a spread of 1,410 basis points (bps) between overall Class A and Class B/C product.

Overall A was the only segment to report declining vacancy this quarter with six markets reporting improved or stable conditions amongst their Class A inventory.

Trophy, best-in-class product, has remained the most stable relative to other tiers with vacancy averaging around 11.0% over the last two years.

This continued strong performance reflects tenant preferences for quality or well-appointed office buildings.

Positive note for downtown market

Downtown office vacancy has decreased for the first time since Q1 2020. While just 10 bps, this is a positive turn for the segment which has struggled amid challenging conditions.

New supply has been a major contributor to this narrative. This was a rare quarter however in which no new supply was delivered to influence the market. Instead, over 400,000 sq. ft. of mostly vacant, obsolete space fell out of inventory for conversion or demolition, along with other product which has turned owner-occupied and aided in improving conditions.

Five cities reported declining vacancy this quarter, both downtown and suburban. Winnipeg and Vancouver saw the largest decreases downtown, meanwhile Calgary and Halifax saw the greatest suburban improvements.

Overall national office vacancy followed downtown and decreased 10 bps in Q1. This marks six quarters in which vacancy has held in a narrow 20 bps range.

Sublets approaching early pandemic-stage quarters

Sublet space has fallen to its lowest level since Q3 2020, currently totalling to 13.6 million sq. ft. and equal to 2.8% of total office inventory. This seven-quarter run of declining sublet vacancy has seen space decrease by 20.2% from its peak in Q2 2023.

The pace of space coming off the market has ramped up over the last three quarters with 852,000 sq. ft removed in Q1. This is the single largest quarterly decrease in sublets since Q4 2021.

Five markets had their sublet vacancy decrease, most notably in Toronto and Vancouver, driving the national decline. Montreal meanwhile noted the only meaningful increase, 60% of which came from technology tenants.

On a year-over-year basis, all but three markets are reporting lower sublet vacancy rates, including Toronto (-90 bps), Ottawa (-50 bps), Halifax, Vancouver and Calgary (-40 bps each).

Sublet space continues to experience a mix of leasing activity from tenants looking for turnkey opportunities as well as listings expiring and transferring to direct.

Thinning office construction

A total 3.2 million sq. ft. of office product is under construction nationally, equal to 0.6% inventory. While virtually unchanged from last quarter, the active pipeline has continued to thin and remains at its lowest level in over 20-years.

Over half of the number of office projects that remain under construction are part of mixed-use developments offer a combination of residential and/or retail space. On a square footage basis these properties represent over a third of total construction.

The active pipeline is currently 52.5% pre-leased. Pre-leasing levels remained under 50% for most of 2024 and have improved in recent quarters due to the delivery of vacant space. New leasing activity among these properties has been noted as well, albeit is limited and at this stage of the development cycle are being secured closer to fixturing/ occupancy dates.

Outside of Toronto, Vancouver and Montreal, all markets are building less than 75,000 sq. ft. a piece with no pre-leasing in place.

Quiet quarter for starts & deliveries

Q1 2025 marks the third consecutive quarter where no new competitive office projects commenced construction. Increasingly limited projects have moved forward over the last few years, a trend that is not expected to reverse in the short to medium term despite tenant preferences for premium product.

Just one building delivered this quarter in Toronto at 5250 Yonge St. With no pre-leasing in place, the developer is considering all options including non-office uses that compliment the other components of this mixed-use project.

Looking ahead, over 400,000 sq. ft. of new supply is anticipated for delivery next quarter across Vancouver and Toronto and is currently only 20.2% pre-leased.

Conversions pipeline remains active

Office conversions continue to see obsolete office buildings fall out of existing competitive inventory as owners look for ways to reposition their assets. 587,000 sq. ft. of conversions (either active or planned) came out of inventory this quarter in Montreal, Edmonton and Calgary. These properties had an overall 10 bps impact on vacancy.

A cumulative 5.7 million sq. ft. of former office product has fallen out of inventory due to conversion since 2021, equal to 1.2% of inventory. Over the same time period, the latest development cycle has injected 4.3% of modern office space to national inventory through new supply.

Office-to-residential conversion projects continue to comprise the majority of activity, spurred on by the need for more housing in urban centres. This is followed by life sciences facilities, exclusively taking place in Montreal, and education uses (university/college institutions or charter schools).