Canada’s downtown office vacancy rate marked its first, albeit slight, improvement since the start of the pandemic, according to a report released Monday by CBRE Group Inc.
The national vacancy rate for downtown offices dipped to 19.9 percent in the first quarter, after hitting a record high of 20 percent in the previous quarter.
The report says that both Toronto and Vancouver saw declining vacancy rates despite the overhang of tariffs, but the overall market remains in limbo due to trade uncertainty.
“The office market was poised for a rebound, and while there are pockets of positivity, the office market, like much of the economy, is in wait-and-see mode,” said CBRE Canada Chairman Paul Morassutti in a statement.
“It’s unclear how much renewed momentum there is and to what degree tariff-based uncertainty is affecting decision-making.”
The report noted that new supply coming onto the market has been helping push vacancy rates up in recent years, but the first quarter was a rare one when no new supply was added downtown while some 400,000 square feet were taken off the market for conversion or demolition.
The heightened vacancy rate has led to office construction reaching a near standstill. For the third quarter in a row, there were essentially no new office projects started, while only one was completed in the quarter. The one office building that was finished in the quarter, in Toronto, has no pre-leasing in place, so the developer is considering all options, including non-office uses, according to CBRE.
The combined downtown and suburban office vacancy rate, which had been bouncing around a narrow range in recent quarters, stood unchanged from the previous quarter at 18.7 percent.
The downtown vacancy rate in Vancouver was down to 10.7 percent, Winnipeg dipped to 18.2 percent, Toronto to 18.5 percent, and Waterloo Region was down a bit to 28.8 percent.
Calgary’s downtown rate rose to 30.2 percent, Montreal’s to 18.9 percent, Ottawa’s to 15.7 percent, London’s to 32 percent, while Halifax held steady at 16.1 percent.
CBRE says the industrial real estate market is likely to be more impacted by tariffs, but in the first quarter, it still showed relatively solid net absorption of four million square feet. That’s down from the 10-year quarterly average of six million.
The vacancy rate in this category, where online shopping has led to a boom in warehouse demand, did increase slightly to five percent in the quarter. It hasn’t been that high since 2016.
Tariffs, which would especially impact Canada’s manufacturing sector, could lead to much more dramatic swings ahead, said Morassutti.
“If there is tariff intrigue in the office market, there is existential concern in the industrial market.”