Vancouver’s downtown office vacancy rate dropped in the second quarter of 2019 to Toronto levels, making the two Canadian cities the hottest office markets in North America.
According to CBRE’s second-quarter statistics report, released Tuesday, Vancouver’s office vacancy rate dropped from 4.7 per cent in the second quarter of 2018 to 2.6 per cent in 2019. Toronto’s rate remained stable year over year at 2.6 per cent.
Vancouver’s shrinking vacancy rate was fuelled by a growth in professional firms (such as accounting and law firms), real estate and tech companies moving into office buildings, said Jason Kiselbach, vice president with CBRE in Vancouver.
The third lowest office vacancy rate in North America was 3.6 per cent in San Francisco, which has seen many tech companies migrating from Silicon Valley to the city.
“Two years ago, it would have been unprecedented to have a Canadian city top the North American office rankings. We now have two Canadian cities setting the pace, which is truly remarkable,” CBRE Canada Vice Chairman Paul Morassutti said in a news release.
Canada’s overall office vacancy rate fell from 11.5 per cent in the second quarter of 2018 to 11.3 per cent this year, thanks in part to the record low rates in Vancouver and Toronto.
Those record low vacancy rates are also leading to record-high rental rates, CBRE said. In Toronto, the market average rental rate in the Financial District hit $40 per square foot, a new record.
“Asking rates of this magnitude were previously only seen in new builds, rather than existing buildings,” CBRE said the report.
And while new supply will be coming onto the market over the next several years – about 3.9 million square feet – nearly half of that new supply has already been pre-leased, Kiselbach said.
“That should help the vacancy rate a bit, but we’re already seeing 46 per cent of that new supply that’s pre-leased,” he said.
“We’re just seeing so much demand that a lot of it being pre-leased ahead of construction... What that means for tenants is they have to plan well ahead of expiries or expansion and search for options.”
Calgary, hit hard by languishing oil prices and a slow recovery, posted the highest office vacancy rate in the second quarter at 26.1 per cent, a slight decrease from 26.5 per cent the same time last year.
The CBRE report said credit defaults and capital constraints took a toll on demand for office space in Calgary, as 100,000 square feet of office space was returned from leases in the second quarter.
“New capital required to sustain and grow energy companies remains non-existent and if this trend continues it will have adverse effects on office demand,” the report said.