Canadian Office Markets Inch Closer to Equilibrium in Third Quarter With Downtown Vacancy Dropping in 7 of 10 Cities

Q3 also saw a handful of big downtown office leasing deals inked, an indication that businesses still see value in top-quality office space in urban cores

Canadian office markets continued to stabilize and gather strength in the third quarter of 2022, with seven out of the 10 cities tracked in CBRE’s new Q3 Office Figures report recording slight drops in their downtown office vacancy rates.

Canada’s national downtown office vacancy rate remained unchanged at 16.9% in the third quarter, as downtown vacancy declines were registered in Vancouver (whose rate dropped to 7.1%), Calgary (32.9%), Winnipeg (16.1%), London, ON (25.3%), Waterloo Region (23.6%), Toronto (11.8%) and Halifax (18.8%).

Three cities – Calgary, Waterloo Region, Toronto – saw office vacancy edge lower in both downtown and suburban areas in Q3. And though office vacancy remains elevated compared to before the pandemic, Canada still boasts three cities among the top five with the lowest downtown vacancy rates in North America: Vancouver (7.1%), Ottawa (11.5%) and Toronto (11.8%). In comparison, Manhattan’s downtown vacancy last quarter was 15.2%, San Francisco’s was 24.2%, and Dallas’s was 32.2%.

A slew of big office leasing deals were completed over the summer and into the third quarter, a strong indication that businesses still see the value in having high quality office spaces located in the heart of vibrant cities.

In Toronto, medical tech provider PointClickCare expanded its presence, taking 90,000 sq. ft. of office space over three floors at The Well, one of the city’s most high-profile new developments. In Calgary, India-based IT provider Mphasis inked a lease for 26,160 sq. ft. at First Tower, its new Canadian HQ. And in Vancouver, Microsoft completed a deal for approximately 400,000 sq. ft. at the under construction B6 (1090 W Pender Street).

“Canadian office markets have been remarkably resilient despite enduring years of pandemic-related challenges, new supply additions and ongoing remote work issues, as well a pending economic slowdown,” says CBRE Vice Chairman Paul Morassutti. “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.”

Download the Q3 Office Figures report here

Industrial Market Stays Tight

The amount of available industrial space remained at rock bottom in the third quarter, with the national availability rate unchanged at the record low of 1.5%, according to CBRE’s Q3 Industrial Figures.

Vancouver’s industrial availability dropped to its lowest level ever in Q3, 0.8%. Despite the 10.1 million sq. ft. of space currently under construction there, tenants will continue to find limited availability as nearly 80% of this space is already pre-leased.

Winnipeg’s industrial availability rate also hit the lowest point ever in the third quarter, 1.6%, while Halifax’s remained at its record low of 1.7% and Calgary’s industrial availability fell to 3.2%, its lowest level since 2008, even as a record 4.4 million sq. ft. of new supply was added in that market in Q3 alone.

Toronto’s industrial availability ticked up slightly in the third quarter, to 0.9%, but still hovered close to its all-time low as the total amount of development across the Greater Toronto Area hit a three-year high in the quarter.

A lack of industrial availability is having a knock-on effect on leasing rates. In Vancouver, average net rents rose above $20.00 per square foot (psf) in Q3, the highest of any Canadian market by a wide margin. For comparison, Toronto’s industrial average net rent in Q3 was $15.97 psf in Q3, while Montreal, whose industrial availability is at 1.2%, had net rents of $14.82 psf, a new high.

“The supply of industrial space continues to lag behind demand regardless of a slowing economy and record levels of construction in many Canadian cities,” says Morassutti. “Market fundamentals remain strong, yet there is the potential for some moderation of industrial rental rates. However, a deceleration in the rate of rental growth should not be confused with a decline in rental growth.”

Download the Q3 Industrial Figures report here