Office vacancy rates to climb through 2021, CBRE report says
Industrial sector forecast to continue strong performance like 2020
WATERLOO REGION — A new report from commercial real estate firm CBRE predicts office vacancy rates will continue to rise in Canada this year.
As more businesses establish formal return-to-work plans, the sector will begin to stabilize in the second half of the year. Still, more and more offices, especially in the downtown cores of cities across the country, will empty.
Canada-wide, overall office vacancy rates are forecast to rise from 13.4 per cent in 2020 to 15.9 per cent by the end of this year; downtown rates are expected to climb from 13 per cent to 16 per cent.
In Waterloo Region, one of 14 major markets captured in the report, downtown vacancy rates are predicted to rise from 13.8 per cent in 2020 to 15.4 per cent by the end of the year. With lower vacancy rates in suburban areas, the overall impact is muted; overall office vacancy should rise from 7.7 per cent to 9.9 per cent, the report concludes.
“We can say now without equivocation that remote work is here to stay,” CBRE Canada vice-chair Paul Morassutti said in a release. “Every tenant survey supports this. But so is the office. The future is not binary, it is not one or the other, it is both. The future is flexibility.”
Still, even a permanent hybrid model could reduce the need for office space by 10 to 20 per cent, the report notes, adding it’s too soon to understand the full impact.
Even with a predicted downtown vacancy rate of more than 15 per cent, Waterloo Region fares well compared to some of the other markets. Rates in Halifax, London, Windsor, Edmonton and Saskatoon are all forecast to top 20 per cent, with Calgary, hard-hit for years by the declining energy sector, reaching 31.8 per cent.
The industrial sector is expected to continue its strong 2020 performance, fuelled by an ecommerce boom and the growing need for more warehousing and logistical space.
One of the challenges noted in the report is that much of the available industrial supply in Canada is manufacturing or small bay, multi-tenant properties which don’t fit e-commerce demands.
Waterloo Region has seen an influx of businesses looking for land and buildings outside the Greater Toronto Area, but there aren’t many projects slated for development this year, the report indicates.
Industrial availability in the region is forecast to slip to 2 per cent, down slightly from 2.1 per cent last year. High demand is reflected in predicted price increases — scarce industrial land is expected to fetch $633,000 per acre, up from $475,000 last year, while the sale price for industrial buildings is forecast to rise to $160 per square foot, up from $135 in 2020.
“Industrial outperformed everything in 2020,” Morassutti said. “It begs the question: Can this rate of growth keep up?”