Canadian Office Market Vacancy Hits Record High

Canadian Office Market Vacancy Hits Record High
April 16, 2024

Nationwide Vacancy Rates at Record Highs

The Canadian office real estate market is undergoing a significant adjustment, according to a recent report by Cushman & Wakefield. Vacancy rates hit a historic peak of 17.1% in the first quarter of 2024, surpassing the previous record set in 1992. This trend is particularly evident in prime downtown locations (Class A spaces) which saw vacancies rise from 17.1% to 17.5% in just the first three months of this year.

Market Dynamics and Regional Impact

The report delves deeper, revealing a nationwide surplus of 99 million square feet of available office space, a 7.5% increase year-over-year.  An additional 5.5 million square feet of new office space is projected to enter the market throughout 2024, potentially pushing vacancy rates even higher.

The impact of these rising vacancies varies significantly across Canada.  While the national employment rate has seen a modest decline despite population growth, smaller and medium-sized cities are feeling the brunt of the vacancy surge. Calgary faces a staggering vacancy rate of 26.6%, while Saint John reports an even higher rate of 35.7%.  Ontario cities like Kitchener and London are also experiencing significant vacancy levels, at 26.3% and 21.2% respectively.

Economic Indicators and Rental Market Trends

Cushman & Wakefield ties these real estate trends to broader economic factors. The slight decrease in employment and rise in unemployment (to 6.1%) are attributed to higher interest rates that have tempered business hiring and demand for office space.  Interestingly, despite the high vacancy rates, office rent growth has remained stagnant with only a 1% increase year-over-year, reaching an average of $41 per square foot. The report anticipates this trend to continue as new, higher-priced office spaces counterbalance reductions in existing properties.

Future Outlook: Challenges and Potential Solutions

Looking forward, the report predicts continued challenges for the Canadian office market with potential increases in vacancy rates throughout 2024, potentially peaking by early 2025. This projection hinges on the pace of new office space entering the market.  An interesting trend is emerging: the conversion of obsolete office buildings into multi-residential properties. This innovative approach could offer a potential solution to high vacancy rates by catering to evolving market needs.

Kelowna Businesses: Seize the Opportunity

While the national office market grapples with adjustments, Kelowna's market may present a different picture.  The abundance of office space across Canada could translate into better deals for Kelowna businesses seeking to lease. Coldwell Banker Horizon Realty can be your trusted guide in navigating this changing landscape. Our local expertise and market knowledge can help you find the perfect office space to suit your business needs. Contact us today!

Key Points

  • Canada's national office vacancy rate reached a record high of 17.1% in Q1 2024.
  • This surpasses the previous record of 16.9% set in 1992.
  • There is currently 99 million square feet of vacant office space available for lease, up 7.5% year-over-year.
  • An additional 5.5 million square feet of new office space is expected to come online in 2024.
  • Vacancy rates are expected to continue climbing throughout 2024, potentially peaking in early 2025.
  • Small and medium-sized cities have been hit the hardest, with some vacancy rates exceeding 25%.
  • Despite rising vacancy rates, average office rents have only increased by 1% year-over-year.
  • The report anticipates continued conversion of vacant office space to residential use in 2024.

Source: Cushman & Wakefield Report

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