According to a report by commercial real estate firm CBRE, the national office vacancy rate in Canada reached its highest level since 1994 in the second quarter. The firm revealed that the rate increased to 18.1 percent, up from 17.8 percent in the previous quarter. This rise in vacancy is attributed to a combination of factors including the threat of recession, interest rate hikes, weakness in the tech sector, tenants downsizing, and an influx of new office space. The ongoing uncertainty surrounding remote work has only exacerbated these challenges.
The increase in the overall rate was primarily driven by the downtown office vacancy rate, which rose to 18.9 percent in the second quarter compared to 18.5 percent in the first quarter. Similarly, the suburban office vacancy rate increased to 17.1 percent from 16.9 percent. CBRE noted that downtown vacancies in major cities across Canada, apart from Calgary and the Waterloo region in Ontario, experienced a slight uptick during this period.
In Vancouver, the downtown vacancy rate reached 11.5 percent, up from 10.4 percent in the first quarter. Toronto’s rate rose to 15.8 percent from 15.3 percent, and Montreal saw an increase to 17.0 percent from 16.5 percent. However, Calgary experienced a slight improvement as its downtown vacancy rate decreased to 31.5 percent from 32.0 percent in the previous quarter. Similarly, the Waterloo region witnessed a decline in its downtown rate from 22.0 percent to 21.5 percent.
CBRE highlighted that Calgary’s office market has been positively impacted by the expansion of the engineering, construction, and education sectors. Additionally, the city is undergoing various office building conversion projects, which will help reduce inventory and potentially alleviate the vacancy rate.
Interestingly, prior to the pandemic, Canada boasted the lowest-vacancy office markets in North America, particularly in Toronto and Vancouver, where downtown vacancy rates remained around two percent for several years. However, the current situation has significantly changed the landscape.
CBRE also reported that there is a significant amount of office space under construction, totaling 11.5 million square feet. This includes 6.2 million square feet in Toronto, 2.7 million square feet in Vancouver, and 1.9 million square feet in Montreal. These upcoming projects may further impact the office vacancy rate in the coming months.
Overall, the rising national office vacancy rate in Canada reflects the challenges faced by the commercial real estate sector amidst a combination of economic and industry-specific factors. Businesses are grappling with the uncertainties caused by the pandemic, changes in work patterns, and various other factors that have led to an oversupply of office space. As the situation continues to evolve, it remains to be seen how the market will respond and adjust to these changing dynamics.
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