Downtown office market notches slight improvement despite tariff threats

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This article was published 31/03/2025 (221 days ago), so information in it may no longer be current.

TORONTO – Canada’s downtown office vacancy rate marked its first, if slight, improvement since the start of the pandemic, said a report out Monday from CBRE Group Inc.

The national vacancy rate for downtown offices dipped to 19.9 per cent in the first quarter after hitting a record high of 20 per cent in the previous quarter. 

The report says both Toronto and Vancouver saw declining vacancy rates despite the overhang of tariffs, but that the overall market remains in limbo because of the trade uncertainty. 

“The office market was poised for a rebound and while there are pockets of positivity, the office market, like much of the economy, is in wait and see mode,” said CBRE Canada chairman Paul Morassutti in a statement.

“It’s unclear how much renewed momentum there is and to what degree tariff-based uncertainty is affecting decision-making.”

New supply coming onto the market has been helping push vacancy rates up in recent years, but the first quarter was a rare one when no new supply was added downtown while some 400,000 square feet were taken off the market for conversion or demolition.

The heightened vacancy rate has led office construction to reach a near standstill. For the third quarter in a row there were basically no new office projects started, while only one was completed in the quarter. The one office building that was finished in the quarter, in Toronto, has no pre-leasing in place so the developer is considering all options including non-office uses, said CBRE.

The combined downtown and suburban office vacancy rate, which has been bouncing around a narrow range in recent quarters, stood unchanged from the previous quarter at 18.7 per cent. 

The downtown vacancy rate in Vancouver was down to 10.7 per cent, Winnipeg dipped to 18.2 per cent and Toronto to 18.5 per cent, and Waterloo Region was down a bit to 28.8 per cent.

Calgary’s downtown rate rose to 30.2 per cent, Montreal’s to 18.9 per cent, Ottawa’s to 15.7 per cent, London’s to 32 per cent while Halifax held steady at 16.1 per cent. 

CBRE says the industrial real estate market is likely to be more hit by tariffs, but that in the first quarter it still showed relatively solid net absorption of four million square feet. That’s down from the 10-year quarterly average of six million.

The vacancy rate in the category, where online shopping has led to a boom in warehouse demand, did increase slightly to five per cent in the quarter. It hasn’t been that high since 2016.

Tariffs, which would especially impact Canada’s manufacturing sector, could make for much more dramatic swings ahead, said Morassutti.

“If there is tariff intrigue in the office market, there is existential concern in the industrial market.”

This report by The Canadian Press was first published March 31, 2025.