FX168 Financial News (North America) News The Canadian office market has ushered in first-tier good news. The vacancy rate of top office buildings has declined for the second consecutive quarter, although the overall vacancy rate has remained stagnant and far higher than the level before the COVID-19 pandemic.

According to Canadian office data for the second quarter of 2024 released by CBRE on Monday (July 1), net absorption (a measure of new leases and newly vacated office space) showed positive growth for the second consecutive quarter, reaching a net positive increase of 2.2 million square feet in the second quarter.

Marc Meehan (Marc Meehan), managing director of CBRE Research, said in an interview with Yahoo Finance Canada: “As we looked at the A-grade office market from the east coast to the west coast, we saw many positive signs and positive momentum.”

According to the report, the vacancy rate of A-grade office buildings has dropped by 30 basis points across the country, and the vacancy rate has declined in 6 out of 10 cities. CBRE described it as “the top asset among A-grade office buildings,” and said the vacancy rate dropped by nearly 1% due to the opening of two fully leased National Bank buildings in Montreal.

The quarterly trends in the vacancy rate and net absorption of A-grade office buildings were the first since the first quarter of 2020 before the outbreak of the epidemic. However, the report said that due to the uncertain prospects for B-grade and C-grade low-end office buildings, the overall vacancy rate in the country has been hovering around 18.5% for more than a year.

“The vacancy rate in this area will continue to rise, and demand will continue to deteriorate,” Meehan said. “Frankly, I had no idea how this story would end. The path in this field is likely to be a bit bumpy in the next few years.”

According to the report, the gap in the vacancy rate between A-grade office buildings in the city center (higher quality of construction and management, modernized decoration and facilities) and B/C-grade office buildings has widened to 8.5%. “This market segmentation is expected to continue, particularly as tenants move to premium properties, leaving behind increasingly outdated products, with little interest from tenants to fill it,” the report said.

The highest overall vacancy rates for the second quarter were in Calgary (27.8%) and London, Ontario (25.3%), and the lowest in Vancouver (9.7%) and Ottawa (11.8%).

The total area of newly started office projects in the second quarter was less than 100,000 square feet. Oversupply, high interest rates, and investor caution posed strong resistance to the construction industry. The construction area of the new office space has dropped to 5.7 million square feet, the lowest level since 2005. Meehan said that this figure will drop further.

Meehan said that a large part of the 5.7 million square foot area “will be completed in the second half of this year or early 2025,” and “we will see this figure continue to decline over the next two years” due to the scarcity of new inventory to be built.

The report notes that the slow pace of construction of new office buildings will provide an opportunity for low-end office owners undergoing renovation to “maintain competitiveness and support the long-term attractiveness of their assets.”

“As available space in prime locations shrinks, demand is likely to spill over to the next level of quality office buildings, particularly those with excellent locations and popular facilities.”