- What Canada’s office availability rate declined in Q1 as leasing activity picked up
- Why Tenants’ focus on high-quality space is driving a wedge between Class-A and -AAA assets
- What next Companies have begun to pause their expansion plans amid economic uncertainty
Canada’s office market began 2025 on a positive note as the national availability rate continued to trend downward.
The figure fell 40 basis points quarter over quarter to 17.1%, Altus Group said in a report set to be released today.
The decline was largely spurred by a rise in back-to-work mandates, which led to an increase in leasing activity and a reduction in sublease space, Raymond Wong, vice president of data solutions and client delivery at Altus Group, told Green Street News.
“The data reinforces the activity that we saw in 2024 with an increase in leasing activity, especially with AA- and AAA-class space,” Wong said. “There’s some positive momentum. Companies are realizing the importance of having people meet in person.”
Nationally, Halifax reported the tightest availability rate at 8.3%, down 310 bps from Q4. Vancouver followed, at 12.5%, while Toronto came in at 18.8%.
Calgary continued to have the highest availability rate, at 20.7%, although the figure dropped 190 bps annually and has now fallen 560 bps since its peak in Q3 2021. The decline can be attributed in part to the Downtown Calgary Development Incentive, which has provided funding for the conversion of 11 office buildings since its inception in 2021, taking 1.6m sq ft of underutilized and vacant office space out of the market.
While buildings were taken offline in Calgary, four new projects were completed across Canada in Q1. Two were in Toronto, adding 140,000 sq ft to the city’s supply, while Vancouver and New Brunswick accounted for one each, a combined 106,000 sq ft of new office space.
Twenty-six buildings remain under construction nationally, totalling 4.8m sq ft, with 63% preleased. Fifteen projects are in Vancouver, where 72.5% of the 2m sq ft of space is preleased. Nine buildings are in Toronto, with 59.1% of the 2.6m sq ft preleased.
Among existing assets, bifurcation continued in Q1. As has become the norm for the sector, leasing activity was concentrated in highly amenitized, well-located buildings.
While the gap between Class-A and Class-B and -C assets has been widening for some time, tenants’ increasing desire for trophy space has driven a wedge between even A and AAA offices. “There are definitely two markets: the AAA, and the B and C,” Wong said.
Eventually, rising rents and declining availability in AA and AAA office buildings will “trickle down” to the A-, B- and C-class spaces, especially as the development pipeline dries up.
But, in order for there to be a material impact on lower-quality buildings, leasing activity and market sentiment will need to maintain a positive trajectory — decidingly difficult amid tariffs, trade wars and overall economic uncertainty.
“Back in December and January, we were a little bit more optimistic. Not just on the office market, but on the capital markets, too,” Wong said. “What we’re seeing right now is hesitation. We’re seeing companies putting their plans for expansion on hold until there is a little bit more certainty with regards to tariffs and how they’re going to impact the economy, as well as where interest rates are heading. We’ve had a bit of a stall in a lot of different sectors until we figure out what will actually be happening, instead of the rhetoric on social media.
“The challenge we have right now is that overall, the first-quarter numbers, fundamentally they look pretty good. But I think the real test will be in the second and third quarters when we see more of the impact of those decisions, that hesitation, on the market. I’m still optimistic, but I’m a little bit more cautious because of the unknowns over the next three to six months. But I think once we get through this, I think that the demand for office will continue to grow.”
