While the percentage of office spaces that are vacant in Canada is higher than at any point since 1994, rental prices have remained fairly stable as a result of institutional owners willing to pay pre-pandemic rates, according to a new report by CBRE Group.
“I think everyone has to stop clutching at pearls, take a deep breath and realize that the office market isn’t going away,” says Paul Morassutti, vice chair of the company in Canada.
According to the property management firm, the nation’s office vacancy rate rose to 15.7 per cent in the third quarter of 2021, up from 15.3 per cent in the previous quarter. The CBRE credits the rise in unused offices on an increase in the number of newly constructed offices and a decrease in occupancy as a result of the fourth wave of the coronavirus pandemic.
“We were really hoping to see a greater sense of normalcy in September and unfortunately that has simply been delayed or deferred,” says Morassutti.
In downtown Toronto, the vacancy rate dipped 10 basis points to 9.9 per cent in the third quarter of the year. Including suburban markets, Toronto’s vacancy rate was 13.7 per cent. This is marginally lower than in the country’s second-largest city, Montreal, which has a vacancy rate of 14.7 per cent. Vancouver has the lowest vacancy rate in Canada, at 7.4 per cent. Calgary has the highest, with 30.1 per cent of office space going unused.
Prior to the pandemic, low vacancy had spurred an increase in new office space construction. There was approximately 1.6 million square metres of office space under construction in the third quarter, in addition to the approximately seven million square metres of direct and sublet space already available. More than half of this construction was concentrated in downtown Toronto.
As more offices become available to renters, fewer companies are looking to sublease office space. According Morassutti, this is because many businesses anticipate an eventual return to the office and others are choosing to defer decisions until it is the time for a lease renewal.
“What we’re finding from tenants right now is for the most part nobody is doing anything dramatic, they are focused first on a back-to-work program and what that may look like.”
While most companies haven’t made firm decisions about the impact of telecommuting on future office demand, Morassutti believes it’s likely that the uncertainty surrounding this topic is the main reason why few major businesses have purchased office buildings in Canada in the past two years.
“I think you’re going to see technology demand continue to be a huge driver of new office space, which is why I don’t believe the remote working issue is as dramatic an issue as others would have you believe.'”
In the industrial sector, vacancy rates remain very low. According to CBRE, the nation’s vacancy rate for industrial space was two per cent during the quarter, while several markets, including Vancouver, London, Waterloo Region and Toronto, had rates below one per cent. Montreal isn’t far behind with an availability rate of just 1.2 per cent.
“The sector is constrained from building because of a shortage of land and difficult zoning laws and Canada could start to see multi-storey warehouse space to help fill the gap,” says Morassutti.