Canada’s Office Leasing Activity Shows Positive Trend

Canada is set for its first year of positive office leasing since before the pandemic, with six major markets reporting net demand growth.

Canada appears poised to achieve its inaugural year of positive office leasing activity since the onset of the pandemic, as evidenced by a recent report indicating that six out of ten major markets recorded net positive demand in the third quarter. Leading this resurgence is Toronto, which boasted over 650,000 square feet of positive net absorption—essentially the difference between leased space and newly available inventory. This absorption was distributed between both downtown and suburban properties, as noted by the commercial real estate services firm, CBRE.

However, this robust performance was somewhat tempered by a downturn in Montreal, Vancouver, and Ottawa, each of which experienced negative net absorption exceeding 100,000 square feet, resulting in an uptick in overall office vacancy rates quarter-over-quarter. The report further highlighted that suburban markets have shown consistent improvement for the fifth consecutive quarter, with the national suburban vacancy rate declining by one-tenth of a percentage point to 17.3 percent. In contrast, the national downtown vacancy rate saw a slight increase of three-tenths of a percentage point, reaching 19.7 percent.

Interestingly, seven Canadian cities reported a decrease in suburban vacancy during the third quarter, with London, Toronto, and Calgary leading the charge. Additionally, four markets—Edmonton, Calgary, Waterloo, and Winnipeg—experienced a reduction in downtown vacancy rates. Notably, vacancy rates for trophy assets, the crème de la crème of commercial real estate, fell by one-fifth of a percentage point, driven by heightened demand in Calgary and Toronto. This marks the lowest trophy vacancy level observed in nearly four years, according to the report.

As the availability of trophy assets begins to dwindle, there is potential for demand to shift toward the next tier of quality buildings, particularly those strategically located and equipped with sought-after amenities. Another critical barometer of office market vitality, sublet space, has declined for the fifth consecutive quarter since peaking in mid-2023, resulting in a reduction of 2.2 million square feet. CBRE reports that the current 14.8 million square feet of national sublet space represents the lowest level recorded in nearly two years, constituting a mere three percent of Canada’s total office space inventory.

While the Canada’s office real estate market shows signs of recovery, the interplay between suburban and downtown dynamics, along with the evolving landscape of sublet space, presents a complex tableau that warrants close observation.