The national office vacancy rate is at the highest level seen in over twenty years – 13.5% as of second quarter 2023. The early part of the pandemic in 2020-2021 saw one of the fastest run ups in the vacancy rate in history: over four percentage points in 18 months.
So how does this cycle compare with previous ones and how long might it take to recover?
In the two previous cycles the market went from start to recovery in less than three years following an economic shock. The office market returned to the previous level of vacancy in roughly the same amount of time it took to reach the peak.
- The dot-com bust saw Canadian office vacancy go from 6.3% in Q1 2001 to 11.5% in Q2 2003, then back down to 6.2% by Q1 2006.
- The global financial crisis saw vacancy go from 5.4% in Q4 2008, up to 8.2% in Q2 2010, then back down to 5.3% by Q4 2012.
Assuming we reach peak vacancy in the next few quarters, as suggested by John Duda in a recent Globe and Mail article, following previous cycle patterns, it could be at least five years before the office market is back to its starting point of 6.5%. Inventory reductions (conversions or demolitions) and key industry resurgence (energy) or emergence (tech, agribusiness, life sciences) will speed this process along. But, even with the recovery that occurred before the pandemic struck, it will likely be at least three years before vacancy in the office market drops below 10%, and longer to be firmly within the balanced range – somewhere in the 6-10% vacancy rate range.