But aging downtown buildings still face difficulties in attracting tenants
Canada’s office market is seeing a positive shift, with suburban areas driving the demand for office space, according to a new report from CBRE.
For the first time since the pandemic, the country is poised for a year of positive leasing growth, with six out of 10 major markets showing net positive demand in the third quarter.
The report showed that Toronto took the lead with over 650,000 square feet of positive net absorption, marking a clear demand for office space in both downtown and suburban areas.
This contrasted with negative absorption seen in cities like Montreal, Vancouver, and Ottawa, where more than 100,000 square feet of office space was vacated.
Suburban areas are particularly seeing momentum, with the national suburban vacancy rate dropping slightly to 17.3%, marking the fifth consecutive quarter of improvement. On the other hand, the national downtown vacancy rate climbed to 19.7%, driven by weakening demand in older office buildings.
Several cities recorded declining suburban vacancy rates in the third quarter, with London, Toronto, and Calgary leading the trend. On the downtown side, Edmonton, Calgary, Waterloo, and Winnipeg saw lower vacancy rates.
A notable gap is emerging between older office buildings and so-called “trophy assets,” defined as the most modern and high-tech properties within Class A. Demand for these top-tier spaces has been stronger, with vacancy rates for trophy assets falling by 0.2 percentage points, especially in Calgary and Toronto. The vacancy rate for trophy assets is now at its lowest in nearly four years.
“Owners of older offices have been hard-pressed to find tenants, but the uptick in office demand for quality space is a rising tide that could have broader benefits,” said Marc Meehan, CBRE’s national research managing director. “With availability in trophy assets beginning to tighten, demand could flow to the next quality tier of buildings, especially those well-located and with in-demand amenities.”
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Another encouraging sign for the office market is the decline in sublet space, which has been decreasing for five consecutive quarters since peaking in mid-2023.
Nationally, sublet space has reduced by 2.2 million square feet, bringing the total to 14.8 million square feet, the lowest level in nearly two years. This figure accounts for 3% of Canada’s total office space inventory.
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