The New Reality: How COVID-19 could impact the commercial real estate market

This is the 15th in a series of stories looking at the new reality of life during the COVID-19 pandemic in the Maritimes. You can find the full series here.

Even before COVID-19 hit, Halifax’s commercial real estate vacancy rate was at about 20 per cent.

While a well-balanced market is considered to be under 10 per cent, Andrew Bergen with commercial real estate company CBRE, says Halifax’s high rate isn’t overly concerning.

“That’s been a result of new supply, which I think has been great for the city,” he said.

Tweet This Click to share quote on Twitter: "That's been a result of new supply, which I think has been great for the city," he said.

Much of that new supply has been contributed by two major developments in the downtown core — the Nova Centre and the Queen’s Marque.

But in the last quarter, the sublease vacancy rate in the municipality jumped 21 per cent.

Bergen says part of that is due to some of the Queen’s Marque being put on the market but admits that the COVID-19 pandemic is putting some unforeseen pressures on the market.

With the provincial restrictions shutting down much of the economy for months, many businesses have struggled to make ends meet, and with employees being forced to work from home there’s been a decrease in the need for office space.

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“I think it’s too early to assess and truly understand what the long-term impact will be,” said Bergen.

“But I will say a lot of organizations are having to reassess and reevaluate their real estate models and strategies given what we’ve gone through over the last few months.”

One of those organizations is marketing company Simply Cast. The company currently rents about 7,000 square feet of office space in a building in Dartmouth.

But with the majority of their employees working from home throughout the pandemic, most of that space has been empty for months.

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CEO Saeed El-Darahali says even before the pandemic they were looking at ways to offer work from home options to their employees, but since the pandemic two-thirds of their workforce has indicated they would like to continue working from home on a permanent basis.

It has El-Darahali reconsidering their office space needs.

“If our staff decide not to come back to the office we don’t want to be spending a lot of money on office space that’s not being utilized.”

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Their current lease expires at the end of the year and El-Darahali says after that they will likely downsize to about 2,000-3,000 square feet.

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But there is a concern more businesses will follow Simply Casts’ lead, particularly businesses in the downtown core.

Ahsan Habib is the director of Dalhousie University’s school of planning and says that downtown is an important part of any city fabric, and currently much of downtown buildings are populated by offices.

“For various reasons, we need to have a vibrant downtown,” he says.

Part of that is being able to sustain downtown businesses outside of tourism, as well as being able to have a functioning transit system, Habib said.

“You cannot have a public transit viable until you have a strong downtown, or a strong core, or concentration of activities.”

Tweet This Click to share quote on Twitter: "You cannot have a public transit viable until you have a strong downtown, or a strong core, or concentration of activities."

Habib says that if the office space vacancy rate continues to rise, the vibrancy of downtown could be at risk.

He says city planners, politicians and policymakers need to start considering this possibility and coming up with plans now to address any future impacts.

Habib says transforming office spaces into residential spaces is one solution, which could also help to address Halifax’s low rental vacancy rate.

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But Bergen says it’s still too early to be raising concern. He says compared to other cities, Halifax is doing well, pointing to Toronto and Vancouver which saw much higher subvacancy rates, with an increase of 85 per cent and 200 per cent respectively.

“I think Atlantic Canada is positioned to weather this storm and really come out of this quicker than a lot of provinces,” said Bergen.

While he admits that Halifax is not in the clear and they will continue to keep an eye on the numbers over the next few quarters, he believes that the demand for office space will bounce back.

“I think having an office obviously drives productivity, creates culture and gives people an environment to collaborate and exchange ideas.”