The Canadian office market showed signs of stabilization in Q3, with only 53,000 square feet of negative net absorption, marking the first positive annual net absorption since 2019. This was driven by regional differences, trends towards higher-quality office spaces, and ongoing construction and conversion activities.
Toronto led the way with over 650,000 square feet of positive absorption, driven largely by pre-leased new supply. Montreal, Vancouver, and Ottawa each posted more than 100,000 square feet of negative absorption, with Vancouver seeing a rise in sublet listings and Montreal’s vacancy increasing due to reduced leasing activity.
The “flight to quality” trend has led to a significant bifurcation in the market, with the vacancy rate for Trophy office assets hitting its lowest level in nearly four years. Sublet space has been falling for five consecutive quarters, with the total at 14.8 million square feet, the lowest level in nearly two years. Seven of the 10 major office markets have seen sublet vacancy rates decrease year-over-year, with the most significant drops in Ottawa, Toronto, and Halifax.
Office construction activity in Canada has dropped to its lowest level in 20 years, with just 4.2 million square feet under construction. This marks the ninth consecutive quarter of decline, as developers hold back on new projects amidst uncertainty in tenant demand.
The current construction pipeline is 36.7% pre-leased, with most new developments concentrated in Toronto. Other cities, including Montreal, Ottawa, Calgary, Halifax, and Waterloo Region, have minimal office space under construction.
Despite this slowdown in new projects, 2024 is set to break a seven-year record for office supply, with over 5.7 million square feet delivered so far. If the remaining projects complete on schedule, this year’s total new supply will surpass levels seen in any of the past.
Source: Canadian Real Estate Magazine
