Downtown Vancouver and Toronto are cited as the two hottest office markets in the country, but while the West Coast city leads in leasing costs, much larger Toronto appears headed for the first 0% vacancy rate for office towers in Canadian history.
Toronto has an inventory of 87.2 million square feet of downtown office space and had a 2.4% vacancy rate as of the third quarter, according to a survey by real estate services and investment firm CBRE.
Vancouver has 23.9 million square feet of offices downtown and a vacancy rate of 4.4%, second only to Toronto. As a comparison, the national downtown office vacancy rate is 10.7%.
Vancouver, however, has the highest office lease costs in the country, at an average of $34.99 per square foot. This compares with Toronto, where the average is $32.91 per square foot. But in Vancouver, analysts say, the average office rent for the new prime Class A space coming to the market will approach $60 per square foot, by far the highest in the country.
The main divergence between Vancouver and Toronto is the pace of office construction and its take-up. Vancouver has 1.9 million square feet of new office space underway, compared with six million square feet being built in Toronto.
In Toronto, more than one million square feet of office space has been leased or sold so far in 2018, compared with 548,900 square feet in Vancouver, according to Thomas Forr, Toronto-based research manager for Jones Lang LaSalle Canada. Forr noted that none of the new office towers would open in downtown Toronto for at least three years.
“Toronto needs more supply but the question shifts to how tight the market becomes in the lead-up to 2021. At the current momentum of demand, we’re 12 months or less from a 0% vacancy rate. It’s a distinct possibility that’s getting closer to reality,” Forr said.
Vancouver is also facing a tightening vacancy rate, but it is not as dire as its big eastern rival’s.
CBRE noted that, of the major new office developments under construction in downtown Vancouver, more than 61% of the space has already been pre-leased.
“Until the new supply arrives, Vancouver downtown office tenants will be competing for space, particularly full-floor opportunities, likely resulting in increased rental rates,” Forr said. •