Office vacancy rate could peak in 2024 as hybrid work models gain popularity: report

The national office vacancy rate could peak at approximately 15 per cent by the end of 2024 as the rise of hybrid work models prompt companies to reduce their office space, according to a new report by Colliers Canada.

The report said office vacancy in Canada has risen from around eight to 14 per cent since 2020, but Colliers expects that figure to fall in early 2025, barring a major economic downturn over the next 18 months.

It added economic strength is tempering vacancy growth, even as hybrid work becomes more popular, thanks to businesses expanding and new companies entering the market.

Colliers’ survey of 289 tenants of its properties across Canada found 55 per cent have finalized their approach to balancing in-office and remote work, up from 49 per cent in the fourth quarter of last year. Eighty-six per cent of tenants indicated they are satisfied with their current hybrid arrangements.

“Hybrid is still having an impact on the market and it’s taking a lot longer for people to figure out what is the right solution,” said John Duda, president of real estate management services for Colliers Canada.

“With the imbalance in the employment market where the employees still have a lot of power, they’re making decisions to work from home longer, so that is impacting people’s desire to keep office. So what we’re seeing on a regular basis is they may keep their space, but they’re reducing it by 10 per cent or 20 per cent.”

The report found the average number of days companies are mandating employees to work in the office increased from 2.5 in late 2022 to three last quarter.

The report said commercial tenants are 10 percentage points more likely to renew a lease for each additional day their employees work at the office. Companies are most likely to keep their current square footage of space if staff work in-office at least four days per week.

“We don’t think it’s settled yet,” said Duda.

“I don’t think it’s going to get back to five days per week, but when we’ve been talking to tenants, talking to industry, everybody seems to think that it could settle at four days per week over the next year or so.”

Duda said studies show there is a “disconnect” between senior management and employees when it comes to work arrangements.

“Generally, senior management want people back in more and employees want to be home more,” he said, noting Colliers’ research has shown staff feel more encouraged to return to the office when their employer can ensure they have some level of privacy at work as they do at home.

“There were clear numbers that whoever had private space, you were in the office significantly more than if you were in an open office.”

But a separate report earlier this week suggested hiring managers and employees might be starting to align on the issue of hybrid work more than three years after the COVID-19 pandemic was declared.

Data from recruiting company Robert Half found that hybrid working arrangements were favoured by 54 per cent of hiring managers, compared with 49 per cent of professionals surveyed.

The firm’s previous survey of hiring managers in the fourth quarter of last year found just 35 per cent favoured a hybrid setup, compared with 60 per cent who preferred everyone on the team working in-office.

John Trougakos, a University of Toronto professor of organizational behaviour and human resources management, said the two sides were initially far apart on the issue when companies began wanting their employees to come back to the office amid the pandemic.

But he said managers have become more open to their staff working from home, while employees increasingly see the value of working next to their colleagues in-person.

“Many organizations still planned for full-time back to the office, but recognized that they didn’t have to have everyone back in full time just to see the benefits,” he said.

“As time went along, I think we saw changes that organizations came to accept the fact that, ‘OK, we can allow employees some level of flexibility on this and we have the capability to make it happen’ and the employees, on the other side of the coin, really identified some benefits to coming back to the office.”

You might also like