Moderating vacancy rates and declining new construction point to stabilization
The Canadian office market may be heading toward more stable ground after years of dramatic fluctuations, according to Colliers Canada’s Q3 2024 National Market Snapshot. While the sector is still facing some challenges, Colliers noted that the worst of the uncertainty might be behind us.
“While vacancy continues to rise, the increase is more moderate than in the past few years,” the report stated, citing a drop in sublet space.
Adam Jacobs, head of research for Colliers Canada, pointed out that although office vacancies are still rising, the situation appears to be stabilizing.
“It’s been such a wild couple of years,” Jacobs said, reflecting on the pandemic and rising interest rates. “It’s starting to seem like that whole crazy, yo-yo-ing cycle is kind of coming to an end.”
One contributing factor to the stabilization is the sharp drop in new office construction. The report suggested that the slowdown could help bring balance to the market by 2025.
Despite the gradual improvements, Jacobs noted that it remains a tenants’ market, with vacancies still elevated and companies taking advantage of favourable leasing conditions. However, he expects vacancy rates to level off within the next year as population growth and return-to-office trends spur demand.
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“I think there is some point where that levels off, probably in the next year,” Jacobs added. “And we’re seeing a lot of other assets tailing off too – even mighty industrial. Construction levels are going down.”
The industrial sector, which has been strong in recent years, is now experiencing a cooling trend, particularly in major markets like Vancouver, Toronto, and Montreal. Victoria now has the highest asking net rental rate, just under $21 per square foot.
The report also highlighted that sublet office space is declining in several key markets.
“We’re in a kind of a weird situation now where the suburbs are a tighter market than downtown and that’s the case almost everywhere,” he said. “When we look back historically… downtown is usually more in demand.”
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