Downtown office vacancies fall as tenants demand high-quality, transit-connected space

Canada's commercial real estate market is undergoing a "steady and measured" recovery, with downtown office vacancy rates falling to their lowest point in four quarters, according to Colliers Canada's second-quarter market outlook released Wednesday.

The national office vacancy rate fell to 13.4%, driven by tenants prioritizing high-quality buildings equipped with amenities and connected to transit. Industrial vacancies tightened for the second consecutive quarter to 3.3%, reflecting shrinking supply.

Adam Jacobs, head of research at Colliers Canada, says companies are recognizing that physical hubs "are essential for collaboration," helping disprove predictions that artificial intelligence and hybrid work models would eliminate office jobs.

While demand continues improving, new office construction has fallen to a 15-year low — only 37,500 square feet of new supply was delivered nationally in the second quarter, signalling a constrained development pipeline.

The trends suggest occupier demand, improving absorption levels, and increasingly scarce new supply are reversing years of pandemic-driven office exodus. Tenants seeking collaborative workspaces with transit access are willing to compete for limited premium inventory.