An estimated 2.7 million square feet of office space returned to the market in Q1 2023
Vacancy rates in Canada’s office leasing market rose during the first quarter as millions of square feet of available space returned to the market and private sector companies delayed leasing decisions, according to Morguard.
The national aggregate vacancy rate reached a high of 17.7% in Q1 2023, with the downtown national average at 18.4% and the suburban average at 16.8%.
An estimated 2.7 million square feet of office space returned to the market, with most of this being in eastern Canada.
“Toronto saw the return of more than 2.4 million square feet during the quarter, 1.4 million of which was in the downtown submarket,” Morguard said. “In Ottawa and Waterloo Region, 537,000 square feet and 200,000 square feet of space was placed back on the market, respectively.”
Only Montreal posted absorption during the first quarter, at 237,000 square feet.
“Vacancy was relatively stable in western Canada,” Morguard said. “Office tenants continued to reduce their footprints in many regions, a trend that began following the initial pandemic lockdowns.”
A major trend that could influence the market’s prospects is the fact that many private sector organizations are electing to delay longer-term office space decisions until the economic situation becomes more stable.
“Some tenants have been able to capitalize on the rising vacancy trend and secure high-quality space at a relatively reasonable cost,” Morguard said. “Built-out space with furniture included has been leased relatively fast.”
Morguard is anticipating office vacancy to continue rising for the foreseeable future.
“Subsequently, investor confidence and investment property sales activity will increase,” Morguard said. “At the same time, property values and cap rates will have stabilized.”
