The Canadian office sector has been labouring under a “perfect storm” of headwinds, says CBRE
The national office vacancy rate in Canada climbed from 17.8% in the first quarter to 18.1% in the second quarter, reaching its highest level since 1994, according to a report by commercial real estate firm CBRE.
“Q2 was a quarter for moderation with most markets reporting softening conditions, but not to the same degree as seen at the start of the year,” CBRE said in its latest report. “National quarterly net absorption for example recorded half of the total seen in Q1, however, remained in negative territory. Only two markets meanwhile posted contracting vacancy: Calgary and Halifax.”
CBRE added that the downtown office sector drove much of this increase, with the gap between the downtown and the suburban segments continuing to widen. As of the second quarter, the suburban vacancy rate was 180 bps lower than downtown.
The report noted that the Canadian office market has been labouring under “a perfect storm” of headwinds, including mounting interest rates, weakness in the tech sector, widespread downsizing, and the prospect of a recession.
“All of this is compounded by the continued uncertainty around remote work,” CBRE said.
Approximately 11.5 million square feet of office space remains under construction across Canada, amounting to 2.4% of existing inventory. Of the expanses under development, 50.7% was pre-leased as of Q2.
“Construction has been steadily declining since Q2 2022 as more projects are completing than kicking-off,” CBRE said. “Should this continue, anticipated deliveries for Q3 and Q4 will lower the pipeline to a level last seen in 2005. For additional context, the national vacancy rate was around 11% at the time.”
