A new report from CBRE Limited says that higher office vacancy rates in the Canadian market are likely to continue.

“With solid GDP numbers, an uptick in the RealPAC sentiment index and improving hiring intentions, one might have expected more office leasing this quarter,” says John O’Bryan, chairman of CBRE Limited. “It’s normal for there to be a lag between good news and business investment, but job growth is the basis for real estate demand and until the economy is creating more jobs on a consistent basis, the current pace of office leasing is unlikely to change.”

According to Statistics Canada, there has been minimal employment growth since August 2013. CBRE says that as a result of slow job growth, 1.5 million square feet of leased office space was returned to the market in the first quarter of 2014. This was the fifth consecutive quarter with limited demand for office space in existing buildings.

CBRE Limited’s National Office and Industrial First Quarter 2014 Statistical Summary shows that the national overall office vacancy rate rose 60 basis points in the first quarter, reaching 10.3 per cent. This is the highest national vacancy rate since the third quarter of 2005.

Six Canadian cities — Calgary, Edmonton, Winnipeg, London, Montreal and Halifax — all have overall office vacancy rates greater than 10 per cent. The remaining major cities are close behind, and expected to reach similar vacancy rates.

While there was increased demand for suburban office markets in 2013, there was more than 1 million square feet of suburban office space returned to the market in the first quarter of 2014. The national suburban vacancy rate went up 90 basis points in the first quarter of 2014, reaching 13 per cent.

There is also soft demand in the downtown Class A market. With new office towers nearing completion, shuffling demand away from existing buildings, the Class A vacancy rate rose from 4.7 per cent in the third quarter of 2012 to 7 per cent in the first quarter of 2014.

“It’s important to remember that Canada has had very low office vacancy rates compared to almost any other country. Even at current levels, the Canadian office market is only now coming into balance,” says Ross Moore, director of research for CBRE Limited. “This is good news for tenants who will have more leverage in lease negotiations. In most markets, landlords will continue to have the upper hand when it comes to quality office space.”