By Kruti Desai, National Research Insights Manager | April 16, 2020

No immediate impact from COVID-19 to market fundamentals in Q1 2020, but the second half of the year may be a different story

The very start of 2020 looked to be promising with strong employment gains in the Canadian job market in Quebec, Alberta, and Nova Scotia, while British Columbia and Ontario reported losses. The national office vacancy rate for all classes continued to decline down to 9.5% in Q1 2020 from 10.3% in Q1 2019, and a slight dip from 9.6% in the previous quarter (Figure 1). The national industrial availability rate for existing supply increased slightly to 2.9% from 2.7% in the previous quarter, and from 2.8% in the same quarter last year (Figure 3).

The spread of COVID-19 has drastically changed economic conditions leading to several market disruptions worldwide. A chain of events have impacted the real estate sector. The drop in oil prices, strict government-enforced containment measures, shifts in industries due to reduced demand in goods and services, weakening supply chains, and increased fiscal and monetary stimulus and interest rate cuts across the globe have now shifted the economic outlook. Additionally, construction has also halted in provinces such as Ontario and Quebec and may extend to other provinces affecting completion dates for new supply. It is expected that these conditions will further impact labour, income and unemployment rates in Canada and across the border and will likely influence leasing activity and supply in both the office and industrial sectors.

Office vacancy by market (Q4 2019 vs Q1 2020)
(Figure 1)

National office vacancy Canada Q4 2019 - Q1 2020


The COVID-19 situation may have put demand for office space on a temporary pause particularly in Vancouver, Toronto and Montreal while placing continued concerns and challenges for Calgary and Edmonton markets. Despite overall uncertainties, the office and industrial supply remained stable at the end of Q1 2020. There were minimal rental deferments and discounts in office and industrial properties. The challenges were predominantly from small businesses that were affected the most over the past few weeks. Average asking rental rates remain unchanged. Nationally, there were 102 office projects under construction in the first quarter of 2020 which totalled 21 million square feet for office and 128 industrial projects totalling 24.8 million square feet. Approximately 14.7 million square feet of office supply under construction has already been leased and 16.7 million square feet leased for industrial.

Office completions & availability by market (Q1 2020)
(Figure 2)

National office completions and availability Q1 2020

The amount of new office supply that hit the market almost doubled in the first quarter this year compared to the previous quarter. A total of 9 buildings with a total of 838,601 square feet of office space were completed, with over 70% already preleased (Figure 2). The most significant office building completion in Q1 2020 was Oxford Properties’ new nine-storey building at 402 Dunsmuir Street in the downtown core of Vancouver. This is Amazon’s second corporate office building in the city and is located near West Georgia Street and Homer Street forming an Amazon corporate office cluster in downtown Vancouver. The new office space is almost 150,000 square feet and Amazon is expected to hire 1,000 employees, bringing Amazon’s local office workforce to 2,000. Chartwell Headquarters’ 130,000 square foot office building at 7070 Derrycrest Drive in Mississauga was another significant completion. The four-storey building is located near the intersection of Hurontario Street and Derry Road and close to Hwy 407. Another notable completion in Q1 2020, Spectrum Square (Building 2), is also located in Mississauga. The building includes sustainable design features, such as daylight harvesting, floor-to-ceiling windows, flexible floor plates and pressurized raised floor HVAC system. The complex aims to attract leading edge companies and top tier talent and will include over 60,000 square feet of open air retail with restaurants and services as well as an outdoor space and water feature.

Industrial availablity by market (Q4 2019 vs. Q1 2020)
(Figure 3)

Industrial availability Q4 2019 vs Q1 2020


To some extent, many tech companies were already utilizing digital technology and providing work from home options to employees while also rapidly ramping up their technology to meet increased demand. Such company practices are what appears to be keeping the economy in gear as they remain productive with the help of technology through applications such as workplace collaboration tools, video conference platforms and using physical office spaces as more collaborative spaces. The transformation of the physical workplace into a more remote work environment could become the norm for many companies post-pandemic as they look to cut costs, resulting in an overall reduction in office demand and smaller office spaces.

Despite the increase in the industrial availability rate, supply overall remains tight. Nationally, 22 industrial buildings were completed in Q1 2020 totalling approximately 2.9 million square feet with an availability rate of about 24%, almost doubling the number of completions in the same quarter last year. Across the major markets, Vancouver had 7 completions which totalled 650,897 square feet, Edmonton had 2 completions at 287,240 square feet, Toronto had 11 completions totalling near 1.5 million square feet, Montreal had 2 completions totalling almost 433,560 square feet, while Calgary and Ottawa had no completions this quarter (Figure 4). The two largest completions were a 330,000 square foot food distribution facility for Gordon Food Service located at 200 Salem Road North in Ajax, directly adjacent to Highway 401, and a 295,610 square foot customer fulfillment centre by Sobeys in Pointe-Claire, Montreal for its e-commerce brand Voilà which is expected to service the Quebec and the Ottawa area.

Industrial inventory & availability by market (Q1 2020)
(Figure 4)

Industrial completions and availability Q1 2020

At the end of Q1 2020, there were 128 industrial buildings under construction nationally totalling almost 25 million square feet with 16.7 million square feet already leased, leaving an availability rate of about 33% compared to 119 in the previous quarter and 118 in the same quarter of the previous year. Many companies are working to adapt to the surge in demand of delivery from food and consumer goods due to the changing conditions and international supply chain disruptions have created increased challenges slowing down deliveries to consumers. It is expected that some companies may halt leasing strategies for larger warehouse spaces due to disruptions in supply chains, as well as manufacturing plant closures from various industries such as the automotive and electronic sector.

Business interruptions and closures caused by the COVID-19 outbreak have brought about wide-spread uncertainty and will continue to affect the commercial real estate market. In light of these recent disruptions, we may see more of an impact to market fundamentals in the second and third quarters of this year as companies reassess their space requirements, along with the temporary halt in construction in Ontario and Quebec which may impact tenant move in dates. Government measures and financial institutional support are being considered to provide assistance to landlords and tenants from loan payment deferrals, banning evictions and rent relief. However, aid has been slow to trickle down and has been inconsistent. Landlords and tenants will also need to be highly strategic in their business operations, carefully evaluating lease terms and contracts and at the same time consider their health and safety obligations while also working co-operatively to find mutually adequate solutions during these turbulent times.



Data Solutions connects the Canadian real estate industry through the delivery of data with unparalleled breadth, integrity and relevance.  We cover new homes, investment transactions and commercial market inventory in key markets, and also provide intelligence on the national housing market and consumer home buying and borrowing patterns.

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Altus Group Limited is a leading provider of independent advisory services, software and data solutions to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology-enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include some of the world’s largest real estate industry participants across a variety of sectors.  Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF.

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