- What Canada’s office availability rate fell to 16.6% in Q2
- Why The decline was attributed to dwindling construction levels and a drop in sublet space
- What next Ongoing economic uncertainty may dampen corporate expansions, and therefore office demand
Canada’s office availability rate dropped in the second quarter as return-to-work policies ramped up and construction levels clamped down.
The national figure fell 40 basis points from Q1 – and 100 bps from a year ago – settling at 16.6%, Altus Group said in a report set to be released later today. Most major markets experienced positive momentum, highlighting a growing trend of recovery across the office sector.
On a local level, Halifax reported the tightest availability rate in the country, at 8.3%. The figure marks a 640-bps decline year over year, and the lowest level the city has seen since 2013.
With minimal movement on a quarterly basis, Ottawa and Vancouver followed, both with availability rates of 12.4%. In Toronto, it fell 40 bps to 18.3%, while Montreal experienced a 30-bps dip to 17.6%.
Although Calgary once again noted the highest availability rate in the country, at 20.0%, the figure has dropped 250 bps annually and 70 bps since Q1. The continued decline signals that the city is on a “strong recovery trajectory,” Altus said.
Nationally, declining availability was primarily attributed to a “significant” contraction in the office construction pipeline, which has shrunk 82% since the peak seen in Q1 2020. No new projects have gotten underway since Q3 2023.
Approximately 875,000 sq ft of space was delivered in Q2, more than 835,000 sq ft of which was in Toronto and Vancouver. The two cities also account for the bulk of the 3.8m sq ft of office space that remains under construction in Canada.
Further contributing to the decline in availability was a drop in available sublet space, which stood at 14.1% in Q2. Representing an annual decline of 310 bps, it’s “strong evidence” that an increasing number of tenants are mandating return-to-office policies and reoccupying their space, Altus said.
However, ongoing economic uncertainty and a softening labour market suggest that overall demand for office space could “face limitations” in the latter half of the year as the need for corporate expansion wanes.
While some office market metrics experienced improvements, net absorption turned negative for all major markets in Q2, save for Halifax and Southwestern Ontario, resulting in a negative reading on a national level. However, it did little to raise the national availability rate as the reabsorption of sublet space and the decline in new construction were so pronounced.
That decline will soon make competition for premium spaces, which are already characterized by higher rents and lower vacancy rates, increasingly fierce. Just as the gap between Class A assets and Class B and C assets continues to widen, so too does the disparity between Class A and Class AAA properties.
Eventually, as existing trophy space is leased up and no new projects break ground, demand will begin to spill over into well-located Class A and B buildings, raising occupancy and, for landlords who make strategic capital investments, rental rates.
“The market is transitioning from one defined by abundant options to one characterized by strategic scarcity, fundamentally altering the competitive landscape for both tenants and landlords in the coming quarters,” Altus said.
