Office vacancy levels will continue to rise in Canada before peaking in 2024, a new report says, as companies continue to rely on hybrid work while some stop providing office spaces for workers altogether.
The report from Colliers Real Estate Management Services, based on a survey of 394 companies across the country, says the average national office vacancy rate is expected to increase by 1.5 percentage points in 2023 before reaching a peak of approximately 15 per cent in 2024.
"We initially thought the office market would pick up faster, but that's not what tenants are telling us," John Duda, president of Colliers Real Estate Management Services in Canada, said in an interview with Yahoo Finance Canada.
"We expect that by the end of 2023, we'll understand what's going on with the economy, with interest rates and hybrid work, and companies will start making longer-term decisions about the future of the office."
The rise of the hybrid-work model since the start of the COVID-19 pandemic has already led to a significant reduction in office space, boosting vacancy rates as more companies allow people to work from home. According to Colliers, some 44 per cent of companies surveyed say they will not be providing a dedicated office or workspace for all employees, leading to a drop in the average square footage of office space per employee. Since the pandemic hit, the average office space per employee has declined by 10 per cent.
At the same time, demand for flexible office spaces is on the rise. Flexible office spaces often feature shared amenities for multiple tenants and can include short-term leases for fully furnished spaces. Colliers says that 21 per cent of companies surveyed are considering flexible office spaces as part of their real estate strategy. Going forward, Colliers expects that flexible offices will make up 8 per cent of total office inventory.
"We're definitely seeing landlords and tenants looking at different options for their offices now," Duda said.
But while the hybrid-work model is here to stay, just half (49 per cent) of companies say they have finalized how they will balance in-office and remote work, while 27 per cent are evaluating their current plan and 24 per cent say they have not developed one yet. Duda says this shows that businesses are still in the midst of "the big hybrid work experiment."
"It's going to be a few years of experimenting. Once the market is stabilized, I think we'll see some definitive solutions come into play," Duda said.
"It doesn't necessarily mean companies will need less space overall… but I think over the next two years, we're going to better understand the impact of work-from-home."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.