That empty feeling

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This article was published 10/07/2023 (985 days ago), so information in it may no longer be current.

Canadian office markets are facing a recession threat, interest rate hikes, tech sector weakness, tenant rightsizing and a new supply of office space compounded by the continued uncertainty around remote work.

Winnipeg’s downtown office vacancy rate increased 70 basis points this quarter to 17.0 per cent while the overall national office vacancy rate rose to 18.1 per cent, the highest it’s been since 1994, according to CBRE’s Q2 2023 Canadian Office Figures.

“Winnipeg has generally been a resilient market, and we will continue to be,” said Paul Kornelsen, vice-president and managing director for CBRE.

There is 16.8 million square feet of vacant space available for sublease nationwide, which is 2.5 million sq. ft. more on the market compared to this time last year.

Although downtown vacancy rates have increased nationwide, Toronto (15.8 per cent), Vancouver (11.5 per cent) and Ottawa (15.1 per cent) are faring lower than the Winnipeg market with Calgary (31.5 per cent) as the highest.

Higher vacancy rates are a factor of working in a post-pandemic environment where technology is transforming the flexibility of a work-from-home lifestyle, said Kornelsen.

“It doesn’t mean that there’s no place for an office, just that it’s changing and what we’re seeing is that we have an excess of office space in most markets across North America,” he said.

Traditionally, white collar employees are expected to be physically in their office working Monday to Friday, however, workplace adaptations throughout the pandemic largely shifted people’s perspective around remote work and doing what is best suited for their business.

Flight-to-quality movements are a key contributor to enhancing the workplace and retaining employees, said Kornelsen.

Office buildings that reinvest in the property with amenities such as lighting, elevator and lobby upgrades, serviceable food courts, nearby coffee shops, restaurants, gyms, green space and employee lounges, will continue to be successful in competing against a home office.

“Landlords have to look at their assets from a strategic point of view and say, ‘How am I positioning this building differently from the other opportunities that exist in the market?’” said Kornelsen.

Having a strong corporate culture is another factor that attracts employees to work in an office setting where the opportunity for group learning, personal career growth and mentorship is unmatched in comparison to an entirely remote work environment.

“The biggest reason why people want to be in the office is to be with other people in that organization,” he said. “Companies will continue to evaluate their space needs and what’s best for their workflow.”

True North Square has over 365,000 sq. ft. of Class A office space and will feature four towers with the latest development for Wawanesa Insurance, expected to be completed by early 2024.

The first tower at 242 Hargrave St. opened in June 2018 as a 17-storey Class A office and retail building that was able to capitalize on the latest design and architecture trends.

Vacancy rates are a part of an up-and-down cycle in a market and it’s key that landlords view that as an opportunity rather than a challenge, said Jim Ludlow, president of Truth North Real Estate Development.

He said the Hargrave building was fully leased prior to the pandemic and tenants have since focused on creating innovative and attractive workplace environments encouraging employees to return to the office.

These changes have intentionally increased overall productivity, employee well-being and played a role in strengthening corporate culture.

Within the last two years, downtown safety issues paired with shorter commute times for some employees has led few companies to move their business away from inner-city centres lowering the suburban vacancy rate to 9.7 per cent, said Kornelsen.

Additionally, rising vacancy has resulted in decreasing rental rates which, on an overall basis, are down $0.21 per sq. ft. quarter-over-quarter.

Kate Fenske, CEO of Downtown Winnipeg Biz, said they are working with the city to develop new ways to not only build new public spaces, but enhance and maintain what’s already downtown.

“The more people that are here in this neighbourhood, the safer it is, and the safer it feels,” said Fenske. “What’s required there, is really a commitment and long-term vision to see downtown as a vibrant community where people are 24-7.”

As businesses shift to newer developments with Class A offices, Class B and C buildings will become vacant and remain the largest contributor of flight-to-quality movements.

Kornelsen expects there will be another jump in downtown vacancy rates for the duration of the year with the completion of the Wawanesa Insurance building before the rates begin to stabilize turning over for Q1.

Overall, Canadian cities are faring better as compared to major downtown U.S. markets ranging from Manhattan at 15.5 per cent to Dallas-Fort Worth at 31.3 per cent.

tessa.adamski@freepress.mb.ca