Despite the economy’s complete recovery, the office market is experiencing record-high vacancy rates as it deals with new difficulties, such as a slowdown in the computer industry.
According to a survey published on Tuesday by commercial real estate company CBRE Group, the national office vacancy rate reached 17.1% in the fourth quarter, a new record high.
In the most significant Canadian cities, Toronto’s office vacancy rate surged to 13.6% in the fourth quarter, while Vancouver’s vacancy rate rapidly increased to 9.8%.
While the pandemic’s shift to remote work is partially responsible, CBRE claims there are a lot of additional variables causing the high vacancy rates, including new projects that have just recently gone online.
According to CBRE, five million square feet of new office space became available countrywide during the quarter.
Paul Morassutti, chairman of CBRE Canada, said that: “Remote work continues to get all the attention, but the main reasons vacancies have gone up are
- new supply (particularly in Vancouver and Toronto)
- the re-pricing of the tech sector, and
- concerns about a possible recession in 2023.
Many businesses have postponed or reduced their office space expansion plans due to the technological sector’s slowdown. Shopify’s decision to renovate its office space in the city rather than move into a prominent mixed-use tower in downtown Toronto is one notable example of how the tech retreat has affected the office space sector.
Another factor affecting the Toronto office market is what is known as a “flight to quality,” or tenants favoring more upscale locations over more aged structures.
According to CBRE, clients in the Vancouver market are increasingly choosing office space outside the city center.
Calgary’s office vacancy rate decreased marginally in the fourth quarter. However, it still stands at a sizable 32.6 percent, despite the city having been plagued for years by high levels of vacant office space due to numerous crashes in crude prices over the past ten years.
“Only Winnipeg, Waterloo Region, and Halifax had an improvement in market circumstances, with their downtown and suburban submarkets either staying stable or declining. Halifax is also the first market to reach pre-pandemic vacancy levels, “says the research.
The increasing vacancy rates may not be entirely terrible, according to CBRE, as tenants now have more options and landlords are providing more incentives as the Canadian economy braces for a possible recession this year. Downtown office space was hard to come by before the pandemic, and vacancy rates in important markets were approximately 2%.
Developers of offices take note.
The office market could be stabilized because fewer buildings are now being built.
The amount of new office space being built nationwide has dropped to just 11 million square feet, the lowest level since the fall of 2017, as developers adopt a “far more cautious approach to building,” according to CBRE.
Before starting a project, some developers are also asking for more significant pre-leasing commitment levels. In addition, a resurgence in the tech industry, according to Morassutti, will also boost the office market.
He also said, “In the long run, we see a recovery in tech demand, followed by a recession as we work through the fresh supply. As a result, it is more challenging to predict the long-term effects of remote work.”
- Published By Team Timeswire