Canada’s office sector showed signs of improvement in Q2, according to a quarterly report from Morguard, which also noted that renewal discussions for office space in the nation’s major downtown business districts were promising.
Although still early, activity in the office sector has been positive. In Q2, private sector office tenants started making long-term premises decisions, demand for sublease space, especially if furnished, increased for the first time in a year, while a growing number of tenants removed sublease space from the market, indicating employees began returning to offices amid rising COVID-19 inoculation rates. Additionally, while vacancy levels did increase, it occurred at a decelerated pace for the first in nearly a full year, reported Morguard. The national downtown vacancy rate increased by 50 basis points to 14.9% in Q2-2021—a vast improvement compared to the previous 12-month period during which the quarterly average vacancy rate increase was 1.28%.
Morguard’s report also expressed confidence that commercial leasing activity in Canada would become more robust going forward, again due to rising vaccination rates and eased pandemic-related restrictions that are believed will continue into autumn. In fact, with economic growth forecasted for H2-2021, leasing activity is slated to commensurately increase. Moreover, the return of international students and immigrants to Canada will bolster multifamily residential rental demand, and even retailer leasing will rise with shopping malls reopening.
Unsurprisingly, the industrial market was strong in Q2, with Morguard noting that it “continued its impressive run.” Transaction closing activity was very strong during the quarter, thanks to “strong interest from institutional, private and public capital groups,” all of which bid aggressively on functional warehouse and distribution and logistics properties Canada-wide. As a result of brisk competition for limited supply, investors even scooped up older facilities to modernize them. All of this conspired to put even more downward pressure on low low cap rates and upward pressure on rents, thereby driving up property valuations. The industrial’s sectors vibrancy will continue through the remainder of the year and into 2022, said Morguard.