Slowdown in office vacancies hints at economic upswing

‘Re-opening plans, tours and renewal discussions are all on the rise as tenants prepare for their return to office in the second half of the year’

Slowdown in office vacancies hints at economic upswing

The overall office vacancy rate in Canada increased slightly to 15.3 per cent in the second quarter of 2021 from 14.6 per cent the previous quarter, according to CBRE, a commercial real estate services and investment firm.

The overall vacancy rate in suburban (15.7 per cent from 14.9 per cent) and downtown (14.9 per cent from 14.4 per cent).

“The important role that in-person interactions play is becoming increasingly apparent and, combined with the recent successes in controlling the pandemic, including Canada becoming a global leader in first-dose vaccination rates, this is translating to increased office activity across the country,” according to CBRE’s Q2 2021 Quarterly Statistics Report. “Re-opening plans, tours and renewal discussions are all on the rise as tenants prepare for their return to office in the second half of the year.”

And while cities such as Calgary (30 per cent), Edmonton (21.5 per cent) and Halifax (15.8 per cent) have vacancy rates above the national average, there are fewer vacancies in other Canadian business centres.

Specifically, overall vacancy rates are below the national average for London (15.1 per cent), Montreal (13.6 per cent), Toronto (13.3 per cent), Winnipeg (13.1 per cent), Waterloo Region (11.1 per cent), Ottawa (9.8 per cent) and Vancouver (6.9 per cent).

Nearly two-thirds (63.7 per cent) of employers have formed some kind of planning group to plan for the return to the workplace, according to a previous report.

Industrial spaces dry up

When it comes to industrial spaces, the overall availability rate dropped to 2.3 per cent for the second quarter of the year from 2.9 per cent the previous quarter.

Industrial spaces availability rate is above the national average for Edmonton (8.4 per cent), Calgary (6.4 per cent), Winnipeg (3.4 per cent), Halifax (3.0 per cent) and Ottawa (3.0 per cent).

Meanwhile, this is lower in Montreal (1.4 per cent), Toronto (1.2 per cent), London (1.2 per cent), Vancouver (1.1 per cent) and Waterloo Region (0.9 per cent).

“The level of industrial demand is unprecedented and is now running up against very real limitations. We don’t have enough space to accommodate business demand and can’t build new space fast enough,” says Paul Morassutti, vice chairman, CBRE.

“We’re at the beginning of a new cycle. What will businesses do and what will happen to prices for consumers when the supply of industrial space dwindles? We’re about to find out.”

Subletting slows

Meanwhile, the percentage of sublet vacant space dropped to 21.7 per cent in the second quarter of the year from 22.2 per cent overall. It also dropped in the downtown area to 24 per cent from 25.4 per cent, but increased to 19 per cent from 18.4 per cent in the suburban area.

“Sublet listings can be knee-jerk reactions in a sudden market correction. The fact that sublets are being cancelled or leased up by new business is a very good sign, and this is only just the beginning of the trend,” says Morassutti. “Canada’s major office markets have fared well over the past year compared to our global counterparts and we can expect the momentum to continue to build as lockdowns are eased.”

Building safety is becoming a bigger issue as employers start to bring employees back to the workplace amid the pandemic, according to one expert.

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