London city center office market continues to struggle, even as pandemic eases

London’s office market continued to struggle in the second quarter of this year even as the impact of the pandemic eased, with more than a quarter of office space in the city center remaining empty, says a report from CBRE, a commercial real estate company.

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London’s office market continued to struggle in the second quarter of this year even as the impact of the pandemic eased, with more than a quarter of office space in the city center remaining empty, according to a report by commercial real estate firm CBRE.

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The downtown office vacancy rate now stands at 25.9%, meaning more than one in four spaces are vacant, down slightly from 28% in the first quarter. Additionally, the suburban office vacancy rate rose to 9% last quarter from 6.4% earlier this year.

Nationally, downtown offices had an average vacancy rate of around 16.5%, well below London.

“Canadian office markets are still trying to find their place in the new world of hybrid work. The strength of suburban offices shows how habits and business are changing. While there is good news, economic instability adds to the challenges facing businesses as they attempt to plan their office needs for the future,” said CBRE Canada Vice President , Paul Morassutti.

“It is increasingly clear that office real estate still has a core business purpose and value, otherwise we would see a much worse dynamic playing out now.”

There is a total of 4.7 million square feet (437,000 square meters) of office space in central London and 1.6 million square feet (149,000 square meters) in the suburbs.

Downtown, the Class A vacancy rate – meaning the newest, highest quality office space – posted a vacancy rate of 14.8%.

The report also showed that there was no new supply of office space built in the center or the suburbs.

The industrial sector tells a different story, with an availability rate of just 1.3% for the more than 40 million square feet (3.7 million square meters) of space in London.

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There were few new supplies due to a construction strike in the spring, but more than 400,000 square feet are expected to be built in the third quarter of this year, the report said.

In fact, there’s over a million square feet of industrial space under construction here, thanks in large part to the Maple Leaf Foods chicken processing plant currently under construction.

London’s market for industrial space reflects the national scene, as the vacancy rate stood at 1.6% Canada-wide, a record low as more than six million square feet of new space was added to the sector, according to CBRE’s analysis.

“As shoppers return to stores and economic growth slows, there is still significant pent-up demand to be met in the industrial sector,” Morassutti said. “Industrial rental rates have increased a remarkable 24.2% year over year and we can expect rates to continue to rise due to a variety of factors including rising construction costs .”

The City of London has raised prices for city-owned industrial land by approximately $50,000 per acre to meet the growing demand for serviced industrial land. City Hall also added over 800 acres (320 hectares) of farmland for future development.

The increases saw prices go from $125,000 per acre to $175,000 for land in Skyway, River Road and Huron Industrial Parks, Innovation Park Phases 1-4 and Cuddy Boulevard parcels for lots up to 4.99 acres, and $165,000 per acre from $115,000 for land over five acres.

The city also raised prices to $165,000 per acre, up from $115,000 for serviced industrial land of any size in the Trafalgar Industrial Park.

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Jose C. Birney