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Canadian office tenants have the upper hand in negotiations with their landlords through 2024 after availability rates stabilized at elevated levels for a year.
According to a new report from Altus Group Ltd. Canada's nationwide office availability rate remained steady at 17.6 percent in the fourth quarter of 2023, with sublease space falling to 17.4 percent of total available office space.
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While the supply of available sublease space declined slightly, Ray Wong, vice president of data solutions at Altus, said tenants still have an advantage overall due to choice in the market.
“If you look at the numbers for Toronto, the availability rate is 18.1 per cent,” Wong said. “Class A spaces, which are in highest demand, still have the upper hand at 15.7 percent.”
One of these options is sublease space, where tenants can avoid additional costs such as carpeting, painting, and in some cases even furniture that departing companies leave behind.
“From a cost benefit standpoint, it makes sense,” he said.
Wong said that instead of subletting their leases, some companies are renegotiating their leases to occupy less space and extend lease terms. This leads to a decrease in available sublease space, but reveals another option for tenants.
The availability rate, which indicates how much space is available in a market for immediate or short-term listings, varied across the country at year's end, with Vancouver being the lowest at 12.2 per cent, Quebec City at 12.3 per cent and Ottawa at 13.4 percent percent. Calgary, which had the highest rate at 23.8 per cent, saw a decline in availability due to the Downtown Calgary Development Incentive Program. The program encouraged the conversion of office space into residential space, reducing the number of vacant spaces and gradually reducing availability. By October 2023, the program stopped new applications due to overwhelming demand, the report said. There are currently 13 approved and four pending projects.
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Only 11 office buildings were completed across the country in 2023, with Toronto topping the list with four completions totaling 786,135 square feet, followed by Vancouver and Montreal. Montreal added the most office space at 1.32 million square feet. However, the pace of new office construction has slowed significantly in the last two years.
According to Altus, companies are still determining the optimal space requirements for employees using new hybrid models.
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The share of remote work arrangements fell from 24.3 percent in January 2022 to 12.6 percent in November 2023, while the share of hybrid work arrangements tripled, rising to 11.7 percent from 3.6 percent in the same period.
Wong said the current market remains somewhat unpredictable as companies are still adjusting their space needs.
“The challenge in the market right now is for companies to properly resize or downsize or maintain their space, and that results in the market being fluid to a certain extent,” he said.
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