What Do Numbers Say About National Vacancy Rate?
Canada is experiencing an unprecedented surge in office vacancy rates. As per the latest estimates, the office vacancy rate has reached a 30-year-high in the second quarter of 2024 at 18.5%. That’s up 40 basis points compared to the same time last year. In downtown areas where office spaces are more likely to be rented, the vacancy rate has been stuck at 19.4% for the past three quarters.
The entry of new office buildings into the supply chain is likely to make matters worse escalating the vacancy rate to an all-time high. New office buildings coming into the market in the second half of 2024 will only be 39.5% pre-leased, a clear indication the office vacancy rate will likely rise by 20 basis points. As per the reports, Downtown Toronto is going to be the hub of these vacancies.
What Has Led To Rise In Office Vacancies?
Many factors including the massive escalation of remote work due to the pandemic can be attributed to having fueled the rise in vacancies. As the economic growth flattens, businesses are opting for cheaper ways to go about the work. Rent-cutting is one of their best and most effective options to do that.
Who’s Been Hit The Hardest
An office trend can be observed all across Canada that companies are leaving class B and C office buildings in favor of class A buildings. Newer buildings are equipped with tools, technologies, and amenities that appeal to business owners. As per a new report, Class A product has now posted two-quarters of improvement with a drop of 30 bps this quarter. The gap between these new builds and Class B and C products has reached 850 bps this quarter.
The report says old office building owners are undertaking “significant capital improvements and retrofits to help remain competitive and support the long-term appeal of their assets.”
