Downtown office vacancy rates rising in Canada as commercial subleases flood market

Office vacancies rising

Office vacancies are rising in Canada as commercial tenants increasingly look to sublet surplus space, a trend one expert called the “canary in the coal mine” of the office real estate market.

The latest statistics from CBRE Canada show most of the country’s downtown office markets recorded a full percentage point uptick in vacancy rates in the third quarter.

In Toronto, downtown office vacancies rose to 4.7 per cent, from 2.7 per cent in the second quarter, while Vancouver's downtown office market recorded a 4.6 per cent vacancy rate, up from 3.3 per cent.

Of the 371,612 square metres of newly vacant office space in the third quarter, the commercial real estate firm says sublease listings accounted for 40 per cent or 148,645 sq. m.

Paul Morassutti, vice-chairman of CBRE, says an increase in sublet availability is often a precursor to lower rental rates.

But he says even though subleasing has “spiked considerably,” it’s still not yet at the level where it would raise red flags.

“It’s always viewed as kind of the canary in the coal mine for the office sector when you begin to see companies putting space back on the market,” Morassutti says.

“That's never a good sign.”

But he says the amount of vacant space available as a percentage of total inventory is still low.

“By any historical measure, the average vacancy rates in our major markets are still quite good,” Morassutti says.

“There's no reason to panic but the momentum has clearly shifted.”

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