Slowing growth of office-based employment, together with rising office vacancy rates, indicate that commercial office construction is slowing rapidly across the country.

After hitting a 25-year low of 5.1% in third-quarter 2008, the national office vacancy rate registered 6.8% in first-quarter 2009. This figure marks the national vacancy rate's highest level since the third-quarter of 2006. At the same time, office-based employment has fallen by 63,800 jobs over the past year — the second-largest year-over-year drop since April 1992.

According to Cushman & Wakefield Le Page, of the eight largest metro areas in the country, Calgary had the largest quarterly increase in its vacancy rate.

In first-quarter 2009, the Calgary census metropolitan area's (CMA's) vacancy rate rose to its highest level since fourth-quarter 2004, thanks to the combined impact of shrinking absorption and increasing supply. In fact, the city's vacancy rate jumped a staggering 2.5 percentage points to 8.4% in the quarter, up from 5.9% in fourth-quarter 2008.

In Edmonton, the office vacancy rate also jumped sharply — from 4.5% to 5.6% — despite the fact that office-based employment exhibited solid +9% year-over-year growth through the fourth-quarter of 2008 and into 2009.

In Montréal, shrinking office utilization and a drop in office-based employment ratcheted the CMA's office vacancy rate back up to 8.1%, a level not seen since first-quarter 2008.

In Toronto, despite a sustained increase in office-based employment through the first quarter, the overall vacancy rate increased to 6%. This increase suggests that firms have scaled back their leasing requirements due to heightened uncertainty about the North American outlook.

In Ottawa, a significant increase in office leasing by the federal government has helped push the overall vacancy rate down, from 6.8% in third-quarter 2008 to 6.2% in first-quarter 2009. This trend should help support leasing demand into 2010.

Looking forward, CanaData expects companies across the country to reduce their hiring plans in the face of contracting growth. If so, then a more pronounced drop in office-based employment and a rise in office vacancy rates will occur. New office construction is likely to be severely depressed into 2011 as a result.

Canada: Office-based Employment vs Office Vacancy Rate

Data sources: Cushman & Wakefield LePage and Statistics Canada/Chart: Reed Construction Data — CanaData.