In its latest report, commercial real estate services and investment firm CBRE says the office market isn’t as bad as the industrial market, but there are sharp spikes in downtown office vacancy rates due to the pandemic across Canada.
The CBRE Q4 2020 quarterly statistics report, says that on average, Canada’s downtown office vacancy rate rose to 13 per cent in the fourth quarter, an increase of 3.2 per cent from a year prior. Vacancy continued to increase until the end of 2020, reaching 13.4 per cent.
Breaking down the numbers by large population centres, Toronto’s downtown office vacancy rate rose to 7.2 per cent in Q4, accounting for 40.4 per cent of the total vacancy space in its downtown area. Currently, 2.6 million square feet of office space sit idle, an all-time high since 2004.
Other Canadian cities also saw a rise across the board. Vancouver saw its overall vacancy rate rise to 5.8 per cent, the highest it’s been since Q2 2017. Montreal at 10.2 per cent, and Calgary at 29.5 per cent.
A booming industrial real estate market
Conversely, the industrial real estate market has boomed. Logistics and e-commerce have pushed online-capable businesses to expand their logistics networks, many of which focused on urban warehouses and regional distribution centres. The demand resulted in a drawdown of 10.4 million square feet of industrial space nationwide with 26.8 million square feet more under construction.
“We can’t build industrial space fast enough,” said CBRE Canada vice-chairman Paul Morassutti in a report summary. “There’s a huge amount of new space being built, but until then, industrial users will need to be creative to keep up with customer demand, including optimizing existing facilities and converting older industrial space.”
The industry has been gobbling up new spaces as soon as they’ve been made available on the market. In 2020, The national availability rate dropped to 3.3 per cent in Q4 2020. Despite adding 12.1 million square feet of new industrial space this year, Toronto’s industrial availability rate stayed at 2.0 per cent. Vancouver’s industrial availably rate fell from 2.3 per cent, down from 2.8 per cent in Q3. And while it received 1.3 million square feet of new industrial space, 91.5 per cent was leased upon completion. Montreal saw its lowest industrial availability in history, now at 2.1 per cent, nearly half that of its 10-year average of 6.1 per cent. In Ottawa, Amazon has ordered a 2.8 million square feet facility. It’s expected to complete towards the end of 2021.
“We’re seeing larger, well-capitalized tenants wait for the vaccine to resume operations, while smaller businesses have had to adjust their office commitments in order to meet current challenges,” said Morassutti. “Without question, there is hardship behind the numbers, but it’s also worth noting that our downtown office markets are moving in a more balanced direction for the first time in a decade. It’s neither a tenant nor landlord market and this is where the best conversations can happen.”