Suburban office markets posted lower vacancies than their downtown counterparts in several of Canada’s largest urban centres during the first quarter of 2022. CBRE’s newly released statistics reveal a national office vacancy rate of 16.3 per cent, up from 15.8 per cent at the end of 2021, but with some significant variation across the 10 markets surveyed.

Nationally, the downtown office vacancy rate sits at 16.6 per cent, 50 basis points (bps) higher than the suburban benchmark. However, the downtown Class A vacancy rate is still at or below 10 per cent in Toronto, Ottawa and Vancouver. The latter two are now ranked as the tightest downtown office markets in North America with Ottawa’s vacancy rate at 10.2 per cent and Vancouver’s at 7.7 per cent.

Canada-wide, average Class A net rents climbed by $0.72 per square foot (psf) to $22 psf. Downtown office drove that increase, as average net rents pushed up to $25.12 psf from $23.96 psf in Q4 2021. Suburban office rents across the 10 markets slipped slightly during the quarter, with the average Class A net rent at $18.11 psf versus $18.18 in Q4 2021.

CBRE analysts highlight the unique circumstances of Ottawa’s “tepid leasing activity” as a convoy of trucks and affiliated protestors occupied the downtown business district for weeks. The downtown Class A vacancy rate climbed by 50 bps, to 6.9 per cent, with slightly more than 64,000 square feet of space returned to the market during Q1. Even so, average Class A net rents jumped by $0.30 per square foot (psf) to $22.94.

Toronto’s uptick in downtown vacancies, which rose to 11.3 per cent from 9.7 per cent at the end of Q4 2021, is partly attributed to “an influx of direct space shed by tenants moving into new builds” after more than 1.8 million square feet of new downtown supply was delivered over the past two quarters. The same reasoning is applied to the 1.9 million square feet of negative absorption recorded nationally during Q1, of which more than 600,000 square feet occurred in downtown Toronto and more than 730,000 square feet occurred in downtown Montreal.

“Quarters with a high volume of new supply are typically followed by quarters with weaker net absorption as tenants vacate old premises, leaving space to be backfilled,” the accompanying CBRE analysis states. “Markets that recorded positive net absorption include those with earlier provincial reopening guidelines in Western Canada, namely: British Columbia, Alberta and Manitoba.”

Looking west, Calgary’s sublet supply shrank for the fourth consecutive quarter and now equates to 5.9 per cent of the total office inventory, compared to 7 per cent in Q1 2021. The overall office vacancy rate dipped 40 bps, down to 30.1 per cent, during Q1 2022 and average Class A net rents recovered some ground, rising to $16.51 psf. That bump was all attributable to the suburban office where average Class A net rents jumped $0.28 to reach $19.03 psf, while downtown Class A net rents fell by $0.02 to $15.46 psf.

In Vancouver, about 64 per cent of the 3.7 million square feet of office space under construction is now pre-leased and CBRE analysts report “numerous offers are in play for significant blocks of space”. Downtown Class A space continues to command the highest rent in the country, with average net rent at $46.28 psf — significantly surpassing the next priciest market, downtown Toronto, where average Class A net rents were at $35.31 psf in Q1. However, that’s down from the average of $46.79 psf in Q4 2021.

In contrast, Vancouver’s Class A suburban office recorded a $0.94 increase in average net rents, climbing to $29.55 psf in Q1 2022. The suburban office vacancy rate dropped by 60 bps, down to 6.2 per cent, and is now 150 bps lower than the downtown rate.

Montreal registered a 180-bps increase in its downtown vacancy rate and a 210-bps jump in the downtown Class A office vacancy rate, taking it up to 12.2 per cent. However, average downtown Class A net rents rose $0.68 psf during Q1 to reach $25.50 psf. The suburban office vacancy rate is higher still, sitting at 16.9 per cent, and average Class A net rents fell by $0.14 psf during Q1, down to $16.31 psf.