The COVID-19 pandemic has significantly impacted the way Canadians work, with offices closing due to public health measures. However, the future of office space remains uncertain. Statistics Canada shows that the percentage of Canadians working mainly from home has fallen from 40% in April 2020 to about 20% in November last year. This is still a significant increase from the 7% who worked from home prior to the pandemic. 

The commercial market is also experiencing a decline, with downtown office vacancy rates in Toronto reaching a new record high at the end of 2023. CBRE Group reported that 17.4% of downtown offices were vacant in the city, with the vacancy rate across Canadian cities increasing to 19.4% in Q4. Despite optimism for the commercial mortgage market in 2024, office space is expected to see “major pain” in the 12 months ahead. 

Michel Durand, president and CEO of MCommercial, said that the professional environments of old no longer sufficed, and that a different office environment is needed to keep employees wanting to return.

Expectations for Modern Office Spaces Are Changing

New office builds are set to come to market with radically different designs from older models, causing a shift from cramped, generic office spaces to more modern, open-plan designs. This transition will take time and be difficult to finance, but it is necessary for the office sector to evolve. 

Alexander Durand, head underwriter and commercial mortgage agent at MCommercial, believes that the adjustment towards these new build types may bring further pain for office space. While discussions in 2023 focused on converting offices to residential space to address the housing inventory crisis in Canada, borrowers and lenders are seeing that this is difficult due to the differences in floorplates and the cost of change. The new builds are expected to bring back the office sector to a more comfortable offering for lenders.

Source: CMP