The Canadian office market continued to empty out in the first quarter of 2023. CBRE Canada pegs the national vacancy rate at an all-time high of 17.7 per cent across the 10 regional markets it surveys — up 60 basis points since year-end 2022.
CBRE analysts theorize a “once-in-a-generation evolution” is unfolding, which is steadily leaving downtown Class B space behind. Notably, a slight 10 basis point dip in Calgary’s vacancy rate is attributed to the removal of office stock through the city’s conversion incentives.
Nationally, the quarter saw 2.7 million square feet of negative absorption, predominantly occurring in Toronto and Ottawa. On the flipside, Montreal recorded more than 236,000 square feet of positive absorption, all attributable to suburban activity. Vancouver is the only remaining market with a vacancy rate below 10 per cent, while downtown vacancy rates now surpass suburban levels in all markets except Toronto and Montreal.
Ottawa and Vancouver post the lowest downtown Class A vacancy rates in the country, at 9.9 per cent and 10.3 per cent respectively. Even so, Ottawa’s overall downtown vacancy rate of 13.2 per cent is a historical high for the nation’s capital. Toronto’s downtown Class A vacancy rate has climbed to 13.4 per cent, while Montreal’s sits at 14 per cent.
Despite overall positive absorption, an extra 121,000 square feet of space emptied out in downtown Montreal over the quarter. Toronto and Ottawa saw the largest influxes of sublet space during Q1, with sublets now accounting for nearly 29 per cent of vacant space in downtown Toronto.
Meanwhile, average Class A net rents continue to trend upward. Nationally, the average asking rent for downtown space was $29.79 per square foot (PSF), up from $26.75 psf in Q4 2022. Drilling down, downtown Class A space in Vancouver commanded an average of $47.96 psf in Vancouver, $36.88 psf in Toronto, $22.78 psf in Ottawa and $25.98 psf in Montreal.
That’s in keeping with the evolutionary scenario CBRE analysts posit, in which tenants are rightsizing for hybrid work arrangements that have fewer staff onsite, but are also looking for high-quality space. “Demand for cheap commodity space has evaporated and been replaced with the want for spaces that act as conductors for business productivity and development,” suggests CBRE chair Paul Morassutti.
