Reference to the CFA’s Advocacy Update from July 7, 2022

Suburban office vacancy is lower than downtown vacancy, a trend never witnessed before in Canadian commercial real estate, according to a recent report from CBRE.

Canadian office markets moved farther along the road to recovery in the second quarter of 2022, with suburban office nodes performing particularly well in most cities, the second consecutive quarter in which the suburbs have seen lower vacancy than downtown centres.

The national suburban office vacancy rate now sits 90 basis points below the national downtown vacancy rate of 16.9%, according to CBRE’s Q2 2022 Office Figures report. Seven out of 10 Canadian markets recorded tightening suburban vacancy, most often in larger magnitudes than any improvements seen downtown.

Some downtown markets performed better than others. While Toronto continued to see office vacancy inch upwards to 11.9% due to the delivery of 612,000 sq. ft. of new office developments so far this year, Vancouver built on a strong first quarter with leasing demand driving down the downtown vacancy rate by 50 basis points to 7.2%. Half of all Canadian markets reported decreased vacancy downtown, including Halifax (-80 bps), Montreal (-20 bps), Ottawa (-20 bps), and Waterloo Region (-10 bps).

Another positive sign for the Canadian office market is that the amount of sublet space, a reflection of companies changing their office use or rightsizing, fell in the second quarter. The total amount of sublet space available, 14.3 million sq. ft., is now the lowest since Q4 2020, an indication of growing confidence among businesses using office space.

Office construction levels increased in the second quarter, with over 15.1 million sq. ft. now under development nationally, with projects launching in the suburbs of Vancouver and Calgary and nearly half of that new inventory being built in downtown Toronto alone. Class A buildings have outperformed lower-quality or older-aged space, with an average vacancy rate 6.3% lower than Class B. Occupiers understand that highly personalized space with quality amenities will help to offset the drawback of a commute downtown for their employees.

“Canadian office markets are still trying to find their footing in the new world of hybrid work. Suburban office strength shows how habits and business are in flux. While there is good news, economic instability is adding to the challenges facing businesses as they attempt to map out their office requirements for the future,” says CBRE Canada Vice Chairman Paul Morassutti. “To the doomsayers out there, it is increasingly clear that office real estate still has a core purpose and value to businesses, or else we would see a far worse dynamic playing itself out by now.”

Download the Q2 2022 Office Figure reports here.

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