The downtown Victoria office market has not recovered fully from the pandemic and might never do so, says a commercial real estate expert.
A new report from Colliers shows the overall office vacancy rate in Greater Victoria is 7.9 per cent, up from 6.3 per cent in the second quarter last year.
Downtown, the jump is more pronounced. The current office vacancy rate is 8.6 per cent, up from 6.1 in the second quarter of 2023.
Pre-pandemic, the vacancy rate for the region was about 5.1 per cent, said Tristan Spark, vice-president of Colliers Victoria.
Spark said the return to the office of employees who have been working remotely remains “all over the map,” leaving significant chunks of office space vacant in downtown Victoria.
“I don’t think they’re ever going to get back to what they were before the pandemic,” he said.
Spark said in the past, the downtown vacancy rate was less than the suburban vacancy rate, but that switched about midway through the pandemic.
“All of a sudden, suburban vacancy is lower,” he said, noting the suburban vacancy rate is currently 7.1 per cent, up from 6.5 at the same time last year.
“We’ve now hit 8.6 [downtown] and that’s what’s really driven the jump overall to 7.9 per cent.”
Spark said there is no one reason for the rise in the vacancy rate, though it likely has little to do with the province continuing to allow some employees to split their time between home and the office.
He said the province hasn’t given up much of its office space, as it has not yet finalized a long-term plan.
However, a number of firms that work in web-based and software-based industries or do data management have started to give up larger office footprints, he said.
He noted one group is planning to downsize this year to 6,000 square feet from 13,000, while another has already dropped to 1,600 square feet from 13,000 as it has opted to have all of its employees work from home.
“A number of companies have realized their employees don’t want to change, they’re happy with this new hybrid working model, or they’re happy completely working from home, so they’re sticking with it,” Spark said. “That’s starting to bubble up to the surface now, and we’re seeing a little more of that.”
He said they are also seeing some large companies in well-established downtown buildings starting to downsize and sub-lease some of their space to other firms.
But Spark noted that while vacancy rates have been rising and the 7.9 per cent figure is the highest since the pandemic, it remains the lowest among Canadian cities. In Vancouver, for example, the overall office vacancy rate is 8.9, per cent while in Edmonton it’s 18.6 and in Toronto it’s 12.6.
Jeff Bray, chief executive of the Downtown Victoria Business Association, said until the province matches the federal government and requires workers to be in the office three days a week, there is going to be consolidation of office space downtown.
Bray said the DVBA plans to call on parties running in the next provincial election to “make a commitment to ensure the public-sector workers are part of the downtown economy.”
“We want to see our commercial office space full because that means not only downtown workers, but their customers and clients that are coming downtown,” he said.
“The private sector, for all intents and purposes is back, if not five days a week certainly three or four days a week, and the federal government is now back a minimum three days a week, so it is the ÎÚÑ»´«Ã½ government that I think needs to recognize that they’re part of the downtown economy.”
Spark said the one thing that will make a big difference in turning around vacancy rates is an improving economy, which could come from a drop in interest rates.
“If interest rates noticeably come down in early to mid-2025 and the economy starts heating up, everybody starts getting busier and realizing they need a little more space,” he said. “I just think right now there’s still some suffering out there.”
Spark said the vacancy rate for Class A office space – modern buildings with all the trimmings, like multiple elevators and air conditioning – is low at 2.5 per cent downtown, as that kind of space is highly desirable, but vacancy rates jump to 9.8 per cent for Class B space and 12.5 per cent in Class C.
Spark said while there is no strict definition for Class B and C spaces, Class B buildings may have dated fixtures and fewer amenities, while Class C may feature space with single-paned windows, and no air conditioning or elevator.
Class AA space in the region is going for about $32 per square foot, Class A space for $29 per square foot, and Class B hovers around $20 per square foot, while Class C is about $18.
Spark said there isn’t expected to be much change in lease rates, particularly in higher-end buildings, where prices are holding steady. The overall average lease rate in the area of $22.92 per square foot is down 0.2 per cent from the same time last year.
Landlords of Class B and C buildings may have to start improving amenity packages or reducing rent to fill their spaces, Spark said. “If you are best in class in B or C, you’re still going to attract the tenants,” he said.
Another factor that could change the vacancy rate is new office space — the Telus Ocean building under construction at 767 Douglas St. is planning to add 158,000 square feet of Class AA space to the market.
Spark said there will likely be no shortage of tenants for the building, which is expected to be open for business by the first quarter of 2026.
“As the building really starts coming out of the ground and we’re able to take tenants up in hard hats up to the ninth floor and they get a sense of what’s going to happen, Telus Ocean will do quite well,” he said.
The state-of-the-art building is expected to command one of the highest lease rates in the city, but with its design, amenities and desirable location, Spark doesn’t think it will have trouble finding tenants.
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