The commercial real estate sector is offering indications that Canada may be heading in the direction of pre-pandemic normalcy, according to Colliers.
Last week, the commercial real estate firm released its National Market Snapshot for Q1 of 2022, which provides an overview of the office and industrial asset classes in 12 key markets across Canada.
Generally, the main themes were lower vacancy rates and higher average rent prices.
While a broader scale return-to-office plan was put on hold by many companies in Q1 thanks to the omicron variant, Colliers predicts that these companies will put that plan back into action later this year. The report indicated optimism towards the office sector in 2022, as half of the tracked markets either saw a flattening of their vacancy rate or even a decrease quarter-over-quarter.
Still Far From Its Pre-Pandemic Prime
Granted, the once-bustling office sector is nowhere near what we saw in Q1 of 2020, but it’s a start.
“In Q1 of 2020, the office industry was at its prime as it was pre-pandemic with peak office attendance. Q1 of 2021 was a different story, as throughout the country we had different variations of lockdowns and office attendance was low,” says Mr. Daniel Holmes, Incoming President of Brokerage Services, Colliers. “The ups and downs of the pandemic opening, closing, and reopening offices was disruptive and hard to manage for most companies and lots of employers chose to remain closed. In Q1 of 2022, we have more people returning to the office as companies have created and are implementing their return to office (RTO) strategies.”
Aerial view of Toronto city
Holmes notes a particularly significant uptick of people returning to downtown cores throughout the country.
“Warmer weather provides a level of comfort as people begin to resume outdoor activities,” says Holmes. “For some, the return-to-office plans that had been put on hold will be put back into action later this year.”
The industrial sector in particular saw rents soar. The GTA's industrial market has seen a 30% year-over-year increase in net asking rental rates, and close to a 40% increase since the beginning of the pandemic two years ago, according to the report.
Low availability across the board has enabled landlords in the industrial markets to demand premiums.
“A growing trend in some of the major industrial markets is seeing active listings not having a posted asking rent,” says Holmes. “When landlords are no longer posting rental rates, it means they don't want to limit themselves to that posted rate and they are confident they can get more due to the tight market caused by lack of availability.”
On the office space front, the report highlights the new AAA supply that has entered the Vancouver market and created an opportunity to find large contagious spaces in premier buildings for the first time in a lengthy period. In office spaces, the average asking net rents increased by 4% across all classes.
The report highlights the impossible-to-ignore role of supply chain issues and rising inflation on the demand for office space.
“Supply chain issues and inflation are causing major delays and increased costs when building out new office space or reconfiguring existing space,” says Holmes. “For example, a new chair used to arrive in days but now it takes weeks. There are also major construction delays and fit outs cost more.”
According to the report, many factors are perpetuating the supply chain issue, including higher shares of e-commerce sales, global container shortages, and a lack of robust transportation methods, among others.
Yet, all signs still point to the coming-back-to-life of offices across the country. While the disruptions are expected to continue in 2022, there should be a gradual easing over time, according to Colliers.
“While we can’t predict when -- or if -- things will return to pre-pandemic levels, we are seeing that the office market is heading in the right direction and will need a partnership between landlords and occupiers to create an environment that people are excited to return to,” says Holmes. “People are looking for energy when they come back to the office and that energy can be created in lots of different ways. Additionally, the industrial market is more robust than it has ever been. The market is hot with very little supply.”
