Canada’s hard-hit office leasing market made progress in the second quarter of 2024, says a Morguard report.

Much of the gain resulted from tenants preleasing class A space in downtown Toronto and Montreal as tenants in Eastern Canadian markets led a flight to quality that has prevailed across the country during the past few years.

“As a result, the second-quarter absorption total was decidedly positive,” said Morguard.

Citing CBRE figures, Morguard reported that approximately 2.2 million square feet of office space was absorbed during the second quarter following a gain of 564,000 sf during the first quarter.

Office users have focused more frequently on leasing class A spaces, which have outperformed while class B and C vacancy levels have hit a record high.

The spread between class A and B-C vacancy has also reached an all-time high.

“The volume of new supply deliveries is expected to slow over the next few years, following a period when leasing market gains were primarily driven by the preleasing of newly constructed space,” said Morguard.

The company was alluding to the fact that new office development projects have become virtually non-existent in Canada. The sector continues to grapple with the effects of the COVID-19 pandemic, the hybrid-work movement, high interest rates and challenging economic conditions, among other factors.

Andrew Petrozzi, Newmark’s head of Canadian research, has noted that Vancouver’s office market could face a shortage of class A space in the late 2020s due to the time needed to develop projects.

The Morgauard report was headed by Keith Reading, the company’s senior research director.