Commercial real estate firm CBRE says for the second quarter in a row, the country’s suburban office vacancy level was lower than the rate seen for downtown regions.
The firm says the national suburban office vacancy rate was 16 per cent in its most recent quarter, while national downtown office vacancy sat at 16.9 per cent.
During the second quarter of 2022, seven out of 10 Canadian markets recorded tightening suburban vacancy, most often in larger magnitudes than were seen downtown.
Positive shift does not necessarily herald a recovery
The suburban Greater Toronto Area office market recorded roughly 457,000 square feet of positive net absorption over the quarter, CBRE's report stated. This marks the first instance since Q1 2020 that net absorption has been overall positive.
These encouraging results were primarily driven by the Markham North and Richmond Hill submarket in the east and the Airport Corporate Centre submarket in the west, where 123,000 and 185,000 square feet of positive net absorption were recorded, respectively.
As the flight-to-quality trend seen throughout various markets in previous quarters continues, 60.2 per cent of the overall net absorption in the market was also accounted for by class-A space.
While this quarter’s uptick in leasing activity is encouraging and might signal a start of recovery from the effects of the pandemic, current economic uncertainty and a looming recession are likely to deter occupiers' confidence in the market for a little while longer.
Suburban construction activity
Development in the suburban office market is slowly gaining traction. The total space under construction in the market has more than doubled year-over-year, with 675,000 square feet currently in progress.
The east market leads construction activity, with an estimated 473,000 square feet of class-A office space in the pipeline.
Metrus, which is currently developing the largest of the four eastern sites, continues construction of The Crosstown Place at 844 Don Mills Rd.
The 265,000-square-foot office tower has approximately 55 per cent of its space still available, as anchor tenant Celestica pre-leased the top three floors.
Construction at 60 Mobile Drive continues as well, with 76 per cent of the 124,000-square-foot redevelopment pre-leased to anchor tenant OSSTF.
Veering to the north market, G Group Developments is constructing the third-largest office project across the suburban markets, having broken ground late last year.
The 10-story mixed-use office tower is located at 5250 Yonge St. and will add 119,000 square feet of office space to the market, plus another 80,000 square feet of retail below.
The west market is trailing slightly behind the north and east in terms of the size of projects under construction.
However, it is the only suburban market to see new supply this year and is still expected to receive an additional 83,000 square feet of new supply over the next two quarters.
Suburban office summary
Despite uncertainty about future office demand – combined with a near-term economic slowdown, rising financing and construction costs and labour shortages – no developments have paused construction and landlords remain committed and optimistic.