Office vacancies increase in all major Canadian markets during the third quarter of 2020

Office vacancies on par with recessionary events

Tuesday, September 29, 2020

Office vacancies increased in the downtowns of all major Canadian cities during the third quarter of 2020, CBRE reports. Newly released statistics show upticks in both sublease and direct space coming onto the market — the latter often due to the logistical dilemmas of the COVID-19 outbreak, which have stifled some normal leasing activities like tours of soon-to-be-available space.

Canada-wide, CBRE pegs the total office vacancy rate at 12 per cent across the nine major markets it surveys, ranging from a low of 5.4 per cent in Vancouver to nearly 26 per cent in Calgary. Collectively, downtown vacancies are up 150 basis points from the second quarter to rest at 11.5 per cent. The past three months have seen nearly 1.6 million square feet of sublet space come on to downtown markets — increasing the tally more than 33 per cent since June 30 — so that sublet space now represents 21.1 per cent of downtown vacant space nationally.

The vacancy rate climbed 80 basis points across national suburban office markets to hit 12.7 per cent. The addition of about 772,000 square feet of sublet space equates to a nearly 22 per cent jump so that sublet now accounts for almost 16 per cent of vacant suburban space nationally.

Toronto and Vancouver retain boasting rights for the lowest downtown office vacancy rates in North America, but both markets loosened over the quarter. Toronto’s downtown vacancy rate rose to 4.7 per cent, up from 2.7 per cent as of June 30. An additional 882,000 square feet of sublet space came onto the market, taking total sublease availability above 1.5 million square feet. The Class A vacancy rate sits at 3.9 per cent, as average Class A net rents rose $0.52 per square foot over the quarter, reaching $35.90.

Vancouver’s downtown vacancy rate climbed 130 basis points to 4.6 per cent. There is now more than 438,000 square feet of sublet space available after an extra 108,000 square feet was added over the quarter. However, the ratio of sublet to all available space dropped slightly, down to 39 per cent, largely due to the 50 per cent increase in direct space availability, representing 229,000 square feet added to the market during the quarter. The downtown Class A vacancy rate rests at 3.3 per cent, as average Class A net rents nudged up $0.12 per square foot to $44.74.

CBRE analysts tie Toronto and Vancouver rent stability to “very low” vacancy rates on a “relative and historical basis”. Elsewhere, Montreal’s downtown office vacancy rate rose 140 basis points to 8.7 per cent, while Ottawa’s similarly increased 110 basis points to reach 8.8 per cent.

Looking west, Calgary’s downtown office market added another 669,000 square feet of direct space and 211,000 square feet of sublet space to the vacancy column, pushing the overall vacancy rate up 170 basis points to 28.7 per cent. More than 12.4 million square feet of office space is now vacant in the city’s core. Meanwhile, Edmonton provides a happy anomaly in recording a 70 basis point decline in downtown office vacancies during the quarter — nudging the rate down to 19 per cent. That takes the downtown vacancy rate back below the suburban vacancy rate, which rose from 19.6 per cent to 21.2 per cent over the past three months.

“The third quarter numbers are similar to what was seen during previous recessionary events and do not yet reflect anything more significant than that at this juncture,” asserts Paul Morassutti, CBRE Canada’s vice chairman. “The vacancy rate increase and amount of new sublet space are mostly in line with five-year quarterly averages.”

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