As Canada continues to experience a slow return to office work, a new report says office vacancy rates in suburban areas continue to be lower than vacancy rates in urban downtowns.

Colliers Canada’s second quarter National Market Snapshot, released last week, found that during the second quarter, overall office vacancy rates hit double digits in every market except for British Columbia. 

“Suburban office vacancy remains lower than downtown vacancy, as urban cores across Canada grapple with slow return to office, low transit ridership, and long commutes,” the report said. 

That suburban-urban divide emerged as Colliers observed that 93 per cent of new office supply in 2023 has been in downtown markets, creating a further challenge for landlords and leasing.

“Subletting is very uneven across the country, ranging from 30 per cent of the market in Vancouver to four per cent in Saskatoon,” the report’s authors wrote.

The report also said the construction cycle has slowed drastically, as development for office inventory has fallen since 2020. 

As the asking rental growth rate slowed in the second quarter, the report highlighted that annual growth still exceeded 26 per cent. 

The report also said that rents in Montreal are now “only seven per cent lower than Toronto, compared to 30 per cent pre-pandemic.” 

“Rents continue to remain the highest in B.C., with Victoria’s rent 35 per cent higher than the national average and Vancouver’s rent 57 per cent higher,” the report said. 

In contrast, the reported found availability for industrial space continues to be below three per cent across the country, but availability increased slightly compared to the previous quarter. 

Additionally industrial vacancy rates “continue to increase marginally” in larger markets including Toronto and Vancouver, “but with no sign of spiking in the short term,” the report said. 

VANCOUVER

In the second quarter, the Greater Vancouver Area office vacancy hit 7.4 per cent, marking a five-year high point, according to the report.

“However, even with this record run up in vacancy, the GVA's office vacancy remains the lowest in major markets across Canada,” the report said.

Subleasing continues to rise, the report found, which now accounts for 30 per cent of total vacant space on a square footage basis, the highest ratio in Canada.

“The relatively stable nature of the industries sector occupying space in the suburban office market has resulted in its vacancy rate trending downwards over the last two years,” the report said.

“Conversely, the more volatile technology sector has significantly contributed to the rising vacancy for the downtown market as companies have downsized their occupancy and requirements.”

TORONTO

Deal totals declined in the downtown area during the second quarter, the report found. However, the authors said landlords are “recognizing the need for move-in ready space among traditional and/or institutional occupiers who are more likely to direct their workforce back into the office under provisional measures.”

Occupancies in Toronto’s financial core “remained fixed” at around 44 per cent, averaging around 51 per cent across each of the five submarkets within the central downtown area, the report found.

“Comparatively, midtown and suburban offices are stabilized at about 60 per cent to 70 per cent in-office occupancy as occupiers consider settling in close proximity to skilled labour seeking to reduce commute times,” the report said.

MONTREAL

The report said leasing activity in Montreal’s office market has experienced a “flight-to-quality” and smaller spaces.

At the same time, vacancy rates in the suburban market continue to decline as “tenants are searching for space to complement a hybrid work model,” the report said.