As Canada’s Office Vacancy Hits All-Time High, ‘Office Space Is Being Reimagined’: Report

A sign advertises office space available for rent in Ottawa's downtown core in Ottawa on Aug. 31, 2020. Adrian Wyld/The Canadian Press

The pandemic started a trend of working from home that is causing a “once-in-a-generation evolution” in the office real estate sector, says commercial real estate firm CBRE.

The nation’s office vacancy rate hit an all-time high in the first quarter this year of 17.7 percent, with many major cities seeing higher rates than they have in decades, or ever.

Toronto’s hit 15.3 percent, the highest since 1995. Vancouver’s is at 10.4 percent, the highest since 2004. Ottawa and Montreal are at all-time highs of 13.2 percent and 16.5 percent respectively, according to CBRE’s report released April 4.

“Office space is being reimagined,” CBRE said in a release.

Businesses are now less focused on cheap and plentiful space for a full fleet of employees. Instead, they’re looking for smaller, higher-quality spaces that offer more business benefits—such as prime location or useful amenities, said CBRE Canada Chairman Paul Morasutti in the release.

Some office space is being converted to other uses. CBRE noted that Calgary—notorious for a high vacancy rate—saw a decrease in vacancy throughout the quarter, in part due to office conversion programs.

Calgary’s downtown office vacancy rate is still high, however, at 27.2 percent for the first quarter of this year, according to Avison Young.

Calgary, Conversions

When Calgary’s economy was stronger, many office development projects entered the pipeline. They took years to complete, and the economy contracted in the meantime, according to a page on the city’s website explaining the office vacancy problem.

By January 2020, Calgary had more office space per capita than comparable cities, with twice as much as Toronto.

Part of the city’s plan to deal with the excess office space is to offer incentives to companies willing to repurpose it as residential units, hotels, schools, and performing arts centres.

Calgary’s Strategic Group says it is the “first to complete modern office-to-residential conversions in Alberta, and the company continues to share its repurposing expertise across Canada.” It began work in March on an empty historic office building in downtown Calgary called the Barron Building.

Conversions can be difficult and costly, however. Architectural firm Gensler did a study last year of 300 North American office properties, including many in downtown Calgary, to see which would be suitable for conversion.

Only about 30 percent were suitable. Location, building form, floor plate size, and several other factors are at play.

Gensler found, however, that some of the most undesirable office buildings can make desirable homes. For example, C-class office buildings might have a ceiling height of 12 feet, and that’s considered “oppressively low for an office,” but luxurious for a residence, Gensler said.

As office leases expire, the vacancy issue may become more apparent. In a March 24 report titled “Remaking obsolete office space: an opportunity for a select few properties,” Altus Group found that nearly 25 percent of all office leases in the United States are set to expire in the next three years. Many leases may not be renewed, Altus said.

The U.S. office vacancy rate is close to Canada’s, at 16.8 percent toward the end of 2022, according to the report.

“Much undesirable office space will simply be removed by demolition and replaced with an entirely new property,” Altus said. This is the main way of dealing with obsolete properties in general, it said. “Yet a much smaller number of office properties will be ripe for conversion into another use, including multi-family, but also mixed-use and other kinds of assets.”