Canada’s Office Real Estate Sector Faces Long-Term Impact from Remote Work Shift
Experts predict a slow recovery for Canada’s office real estate sector as remote and hybrid work arrangements continue to reshape the market.
Canada’s office real estate sector has been hit hard by the shift to remote work, and experts are predicting that it may never fully recover to its pre-COVID strength. While some companies are expected to return to in-office work, the prevalence of hybrid and remote working arrangements will continue to impact the office real estate market. Historically, the sector has experienced a strong rebound following a down phase, but this time around, the rebound is expected to be more gradual.
A November report from Morguard revealed a significant slowdown in investment sales activity in Canadian office real estate, with a 57.3% annual decline in investment sales in the first half of 2023. Additionally, the office vacancy rate in Canada rose to 18.2% in the third quarter of 2023, with downtown vacancies remaining steady and suburban vacancies on the rise.
Looking ahead to 2024, the market is expected to see a demand for Class A buildings in desirable locations, while older Class B and C buildings may experience weakened demand. Companies in need of office space will have a wide range of options, with Class A rents holding up due to a "flight to quality" in downtown areas across the country.
Analysts at Desjardins have flagged Canadian office real estate as an area of concern, noting signs of distress in lower-quality assets. They also anticipate another difficult year for office REITs, with a potential for weakness in the sector. However, companies with assets in good locations and well-maintained buildings may fare better in the year ahead.
The office real estate sector in Canada is facing significant challenges as a result of the shift to remote work, and the road to recovery may be long and uncertain.
Canada’s Office Real Estate Sector Faces Long-Term Impact from Remote Work Shift
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