Canadian Retail Rents Are Dropping, But The Cost of Office Space Hits A High

Canada’s commercial rental market is split, and probably not how most would guess. Statistics Canada (Stat Can) data shows commercial rents are down in Q4 2020. A breakdown shows the decline is largely due to retail rents falling. Despite a broad adoption of work from home, office rents are still chugging to all-time highs.

Retail Rental Rates Across Canada Drop To Multi-Year Low

Retail rents across Canada are making sharp declines, as the pandemic restricts the use of many stores. The agency found commercial retail rents have fallen 3.96% across the country in Q4 2020. Rents are now 6.14% lower than they were during the same quarter last year. More than half of the drop in the index was just in the most recent quarter. The index is now at the lowest level on record, but they’ve only been measuring it for two years. 

Canadian Commercial Real Estate Rents (Quarter)

The quarterly change in commercial real estate rents for offices and retail across Canada, and selected markets, for Q4 2020.
Source: SC, Better Dwelling.

In Toronto, which has been on an extended lockdown for some time, they made even sharper drops. Retail rents fell 12.51% in Q4 2020, bringing them down 13.55% from last year. Yes, it would appear 93% of the annual decline in retail rents occurred in the last quarter. The city underwent its second lockdown during this period. Interestingly, prices in Toronto peaked in Q3 2019, so this isn’t entirely a pandemic issue.

Vancouver bucked the trend, with retail rents recovering some of the lost ground over the past year. Retail rents in the city increased 1.23% in Q4 2020, but are still down 2.08% from a year before. The city was also subject to a lockdown in the quarter, but retail rules were less restrictive than in Toronto. Vancouver had made a sharp increase in Q1 of 2020, before plummeting in the following quarter.

Montreal retail has taken a small-ish hit as well, due to a lockdown – but it isn’t quite as severe as Toronto. Retail rents dropped 1.00% in Q4 2020, bringing them 2.95% lower than a year before. The City was subject to one of the more extreme lockdowns in Canada, but rents are substantially lower than Toronto. It’s a little easier to retain tenants when rent is more affordable, preventing a scramble to fill empty space at a lower rate.

Canadian Office Rental Prices Hit A New High

Despite the work from home trend gaining steam, Canadian companies are paying more for office space. Canada saw office rents climb 0.49% in Q4 2020, and is now up 1.29% from the same quarter a year before. This brings Canada’s office space pricing to a new record high.

Canadian Commercial Real Estate Rents (Annual)

The annual change in commercial real estate rents for offices and retail across Canada, and selected markets, for Q4 2020.
Source: SC, Better Dwelling.

Toronto had a big quarter for office space rental prices. Office space in the City increased by 0.79% in Q4 2020, and is now up 1.39% from a year before. A little odd to see such a big boost in office prices, but a very large drop in retail. Toronto office space is now at an all-time high.

Vancouver office space must be a hot commodity, because prices are up 5x the national rate. Office rents increased 2.50% in Q4 2020, up 4.62% from the same quarter a year before. Office space for the region is now at a new record high.

Montreal office space almost made a similar quarterly jump in the year, but the annual increase outpaced even Vancouver. Office rental rate increased by 2.31% in Q4 2020, and are now up 5.77% from last year. The annual rate is a lot higher than Vancouver, but it also started at a much lower base. Montreal office prices have also hit a new record high.

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  • LT 3 years ago

    This is going to be bad news for little guys trying to lock in rates. Big companies are selling off their leases, because they’re not sure how much they’ll need.

    • David Chan 3 years ago

      Lock in rates?

      • LT 3 years ago

        Leases have value, because they’re locked in. Renewing now at inflation is better than actually renewing at a higher rate. Even the positive numbers would be negative if you adjust for inflation.

  • I will never believe data from Canada 3 years ago

    where are these numbers coming from?

    CBRE and Cushman have sublease reports out showing the highest jump in sublease availability since the financial crisis. 4 or 5 mill sf……

    landlords are scared they are going to have to compete with these on average lower rate options, the longer they sit….

    NER’s are lower pre covid to post. I just did a deal 12% lower in north Toronto. Reason why rates arent collapsing is because the landlords are offering greater inducements. I wonder if free rent or tenant allowance show up on all these balance sheets =)

    landlords asking for 3-4 months deposit now.

    depending on the bank, banks arent giving as much credence to tenants as of late. Especially those who needed government hand outs. and if they are open, they want everything and the kitchen sink for documentation. dont believe me go ask a bank for a commercial loan for a property. if its vacant they will laugh you out.

    depending on which agent you ask (no residential please) lol office lease velocity is down 40% – 60%

  • Rob 3 years ago

    CBRE’s Real Estate Market Outlook;
    Toronto office vacancies will rise to 12.4 per cent up from 7.2 per cent in 2020 and 2.2 per cent in 2019. An increase of over 450 per cent in just two years.
    Stats can has prices increasing WTF
    Pandemic predictions have been bullshit for a year
    However, I predict post-covid 50% of forecasters will be wrong 😀

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