Canada’s commercial real estate landscape is splitting into starkly different stories depending on the city and the class of building, with some downtowns grappling with persistently high vacancy while top-tier office towers in other markets are nearly full.
In London, Ontario, the city’s downtown revitalization plan, endorsed by city councillors this summer, found London has the highest office vacancy rate in Canada at 31.5 per cent, alongside a 17 per cent retail vacancy rate, equivalent to roughly 130 empty storefronts. In the nearby Old East Village neighbourhood, the storefront vacancy rate climbs even higher, to 30 per cent, according to Kevin Morrison, president of the area’s Business Improvement Area.
London Looks Abroad for Ideas
Faced with that gap, London officials and community groups are examining a British model aimed at actively recruiting tenants rather than waiting for landlords and agents to fill space on their own. The Vacant Shops Academy, a UK initiative, has worked with nearly 50 towns and cities, mostly in England, and its founder, Iain Nicholson, said the approach has helped some communities cut storefront vacancy rates in half in under two years.
The model relies on what Nicholson calls a ‘place partnership’ — bringing together real-estate agents, landlords, businesses, cultural groups, chambers of commerce and business improvement associations to jointly decide what kinds of businesses should fill empty units, rather than leaving the decision solely to landlords and brokers. ‘The approach is based on a sense that if you leave tackling empty units to agents and landlords, either it doesn’t get done at all or it will get done but doesn’t necessarily produce the results that you would like,’ Nicholson said.
Part of the strategy involves diversifying what occupies vacant storefronts beyond the retail categories already saturating a strip, such as tattoo parlours or vape shops, by drawing from what Nicholson describes as an alternative list spanning arts and crafts, creative and community uses, leisure, education, and health and well-being. In downtown London specifically, 77 per cent of filled retail spaces are already service-oriented businesses — restaurants, professional offices and entertainment venues — which the city’s own report says fails to meet the broader needs of people who live or work downtown.
Ryan Craven, manager of Dundas Place in downtown London, said the city has taken smaller steps to attract tenants but has not pursued anything at the scale of the UK program. An inventory of vacant downtown spaces has been compiled, he said, but no budget has yet been allocated to implement the broader revitalization plan, a decision that will fall to a newly elected city council during the next budget cycle. London’s plan also calls for activating vacant office and retail space, enhancing downtown programming, supporting businesses, and developing a leasing and occupancy strategy, along with efforts to build a stronger night-time economy.
Montreal’s Premium Towers Tell a Different Story
While vacancy weighs on mid-sized downtowns like London, Montreal’s highest-end office market is experiencing the opposite trend. According to CBRE’s latest office market report, the city’s last large contiguous block of AAA office space was leased during the third quarter, pushing trophy office vacancy down to 3 per cent or less by the end of September — a sharp drop from the 6 per cent level reported in February by CBRE Montreal managing director Louis Karam.
Karam attributed the shift to tenants gravitating toward modern, amenity-rich buildings with strong transit connections. That demand has been visible at the redeveloped former National Bank headquarters at 600 De La Gauchetière St. W., where Canadian National Railway signed a 20-year lease for 440,000 square feet, making it the building’s anchor tenant; as of February, only 55,000 square feet remained available across two floors of the 28-storey tower.
Investor interest has followed the leasing momentum. In January, German investment manager Deka Immobilien acquired the 513,000-square-foot Deloitte Tower at 1190 Avenue des Canadiens-de-Montréal, one of the city’s premier Class AAA properties, with Canderel subsequently taking over asset, property and leasing management.
A Widening Gap Between Building Classes
Montreal recorded more than 500,000 square feet of positive net absorption in the third quarter, and suburban office vacancy in the city fell by 130 basis points over the same period, while available sublease space declined by 348,000 square feet. But CBRE noted the gap between vacancy rates for trophy buildings and older Class B and C properties has reached historic highs nationally, with the firm describing tenant preference for high-quality space as more pronounced than at any prior point. For older office stock, CBRE said, vacancy improvements are increasingly coming not from new leasing but from building conversions and demolitions.
Taken together, the London and Montreal examples illustrate how vacancy pressures in Canadian commercial real estate are no longer a single national trend but one that varies sharply by city, building class and strategy, with municipalities and landlords responding in very different ways depending on local conditions.
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