The vacancy rate at Canadian office buildings reached a record high at the end of last year as companies cut back on space while new supply continued to hit the market.
Nationwide, 17.1 per cent of offices were empty as 2.1 million square feet (195,000 square meters) of space failed to find a tenant, according to a fourth-quarter report by CBRE Group Inc. Much of that vacant real estate was in Toronto, where owners of old buildings failed to replace companies relocating to new ones, and technology firms scaled back growth plans amid a deepening retrenchment in that industry, the brokerage said.
The vacancy rate in downtown Toronto, Canada’s financial capital, rose to 13.6 per cent, the highest since the third quarter of 2003.
Major office markets around the world are coming under increasing pressure as companies adjust to the persistence of remote work since the Covid-19 pandemic. With fears of a slowing economy prompting cost-cutting, firms are scrutinizing their real estate footprints as employees’ preference to work from home at least part time lessens requirements for space.
In Canada, that’s widening the divide between newer, high-end properties with amenities designed to lure workers to the office, and less attractive older ones. Vacancies at so-called Class B offices rose at twice the pace of Class A buildings over the past 11 quarters, according to CBRE’s report.
With empty space piling up, developers are slowing the pace of new projects. The 110 million square feet of offices currently planned nationwide is the smallest amount since the third quarter of 2017. Yet 62 per cent of what’s actively under construction is expected for delivery in 2023, the brokerage said, suggesting the office market may come under more pressure this year.