- What The rate of vacancy increases is moderating in the office market
- Why Return to office mandates and positive economic signs are spurring leasing activity
- What next More balance is expected next year amid a modest construction pipeline
With a third consecutive interest rate cut and inflation falling to the Bank of Canada’s 2% target, a sense of stability returned to Canada’s office markets as the third quarter came to a close.
Although office vacancy rates continued to edge up in many local markets, the pace has begun to moderate, Colliers said in its Q3 National Market Snapshot.
Alongside positive economic signs, including the anticipation of further rate cuts, return to office mandates and tenants’ penchant for high-quality, well-located space helped spur leasing activity.
Canada’s overall office vacancy rate stood at 14.7% in Q3, a 20 basis point increase from the previous quarter. At 16.5%, the downtown office vacancy rate outpaced the suburbs’ 12.8%.
Calgary continued to have the highest overall office vacancy rate at 25% – 28.2% in downtown – while Victoria experienced the tightest market, with 8.1% vacancy. The major markets of Vancouver and Toronto reported overall office vacancy rates of 9.4% and 12.5%, respectively.
As a result, the national average asking net rent declined to $21.46/sq ft. Only four markets reported a quarterly increase, including Ottawa, where rents rose to $17.09/sq ft as the overall office vacancy rate remained flat at 11.5%. The city has experienced the highest positive net absorption thus far in 2024, at 306,000 sq ft.
Just 6.4m sq ft of office space remains under construction across Canada – 5.9m sq ft of which is in Toronto and Vancouver – which should bring about more balance into 2025.
Meanwhile, balance is already brewing on the industrial front. The national average asking net rent dropped to $15.47/sq ft in Q3, down from $15.79/sq ft in Q2. That follows years of consistent increases brought on by tight vacancy rates and dwindling availability.
The national decline was spurred by dips in larger markets, including Toronto, Montréal and Vancouver. The faltering of the latter has pushed Victoria into having the highest asking net rent in Canada, at $20.94/sq ft. Winnipeg’s $10.20/sq ft is the lowest.
Victoria’s rental rate increase comes alongside a 10 bp contraction in its industrial vacancy rate, to 3.2%. Edmonton experienced the same decline, bringing its vacancy rate to 4.2%. Further tightening is expected in Alberta’s capital, as more than half of the 1.9m sq ft of space that’s expected to come online before the end of 2025 is already pre-leased.
In contrast, an influx of new space in Q3 pushed Calgary’s industrial vacancy rate to 3.9% and Waterloo’s to 3.8%. A similar fate is projected for Saskatoon. Although the city continues to have the lowest vacancy rate in Canada, at 1.6%, over 200,000 sq ft of new speculative developments will come to market in Q4.
Alongside Victoria and Edmonton, Ottawa was the only other market to experience a decline in industrial vacancy, as increased competition spurred a 17 bp decline to 1.7%.
