Office construction hits 19-year low amid continuing high vacancy rate
SOURCE: UNSPLASH
Office construction in Canada fell to the lowest in almost two decades, according to a report from an industry group.
The virtual work trend that emerged during the pandemic continues to create severe challenges in the commercial real estate market, with the overall vacancy rate in the second quarter at 18.5 per cent, the highest in many years, according to commercial real estate firm CBRE.
Office construction is at a 19-year low, CBRE said in a report. At 5.7 million square feet, office construction in the quarter is well below the 10-year average of 14.6 million square feet, and activity isn’t expected to substantially pick up again until tenants work through the current glut of vacant space, the report said.
Looking ahead, anticipated deliveries in the latter half of the year are only 39.5 per cent pre-leased and, should this remain unchanged, would raise the current vacancy rate by 20 basis points, with the bulk of this impact being felt in downtown Toronto. Office conversions—mainly office-to-residential conversions—continue to move forward but have had minimal impact on the national office vacancy rate.
The high vacancy rate is creating a division in demand between newer office buildings and older assets. Landlords looking to combat this divide between quality and commodity space are undertaking significant capital improvements and retrofits to help remain competitive and support the long-term appeal of their rental space, CBRE said.
