Demand for Sublease Spaces Helps Drive Office Market Rebound in Q4 2021
14 Jan 2022
The amount of occupied office space increased by 1.7 million sq. ft. nationwide in Q4, Canada’s first quarter of positive net absorption since the onset of the pandemic.
Canada’s major office markets saw leasing momentum shift into a higher gear in the final quarter of 2021, with 1.7 million sq. ft. of office space absorbed nationwide, Canada’s first quarter of positive net absorption since the onset of the pandemic, according to CBRE’s Q4 2021 Canada Office Figures report.
Downtown vacancy fell in Vancouver (7.2%) Toronto (9.7%), and Ottawa (9.9%) in the fourth quarter and these cities still boast the three lowest downtown vacancy rates in North America, respectively.
The amount of sublease space available for rent in downtown markets declined 18% from the Q1 2021 peak, and vacant sublets in the fourth quarter represented just 3.0% of the total national office inventory. Toronto and Montreal are seeing especially high demand for quality built-out sublet office spaces, which provides a glimpse into the mindset of companies strategizing for their return to the office.
“The resurgence in leasing activity over the last quarter tells us there is a much deeper level of pent-up demand for flexibility and quality at an attractive price point than many perceive,” says CBRE’s Toronto Downtown Managing Director Jon Ramscar. “Landlords are having success when they use model suites, and some are building out blocks of their vacant space in advance to entice tenants in the market to compete with the few quality sublets remaining.”
Pre-leasing boosts occupancy
Office tours in the fourth quarter reached their highest point in two years. The rush to snap up quality sublease spaces, particularly those properties offering shorter lease terms, has helped to reduce vacancy rates across the country.
Office occupancy gains were highest in Toronto, Vancouver and Ottawa, where new office towers were completed with high levels of pre-leasing. Canada recorded 2.4 million sq. ft. of new supply delivered nationwide in the fourth quarter, 70% of which was pre-leased upon completion. Construction of office space has tapered off nationally, however, with just 14.9 million sq. ft. of active development, versus 17.5 million sq. ft. a year before.
“The latest data reveals a very interesting insight: that tenants are in fact making big plans for the future, especially when flexibility and lower cost options are available,” says Ramscar. “It’s becoming increasingly clear that our downtown leasing activity is highly correlated with the extent of our lockdowns. However, unlike during previous waves of COVID, more businesses are now looking forward and appear to be viewing the current situation as temporary. These findings point to a very active year for Canadian office markets in 2022.”
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