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Nearly one in three downtown offices in London are empty, as the vacancy rate for the core edged past 30 per cent for the first time, a new report says.

But there is a glimmer of hope as some office buildings are being converted to residential spaces and more may soon join them, said a report on the Canadian office market by commercial realty firm CBRE.

London’s downtown had a 30.4 per cent office vacancy rate while the suburban market was 10.6 per cent for a combined office vacancy rate of 25.3 per cent for the city, said the report on the second quarter of 2024 released Tuesday. 

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London’s downtown office vacancy rate is a record high, CBRE said.

“It continues to be a common theme with office users, the office market is still right-sizing,” said Greg Harris, associate vice-president CBRE.

About 100,000 square feet of office space come on the market in downtown London in the last three months, driving up the total, largely due to businesses looking to sublet their offices to other users, he said.

“It is not truly vacant because it is still under contract, but they are seeing if someone can take over their space,” Harris said, adding it is also an indication downtown office users continue to work from home.

The suburban office vacancy rate in London has been stable for several quarters, increasing from more than six per cent in the second quarter of 2023.

London’s climbing downtown rate bucks a national trend that has seen “stability” in the core office market across the country, CBRE said.

“The only market to experience significant slowing this quarter was London,” the report said.

“Nearly all of this softening came from its downtown market, which is facing acute challenges in its revitalization.”

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Downtown office space in six of the 10 Canadian markets during the last two quarters has seen demand improving, CBRE said. The national vacancy rate for core areas also was stable at 18.5 per cent. 

In Toronto, for example, the market remained at 18.1 per cent for two consecutive quarters after steadily rising since 2020.

“This is what the early stages of a recovery look like, although it is still not broad-based,” CBRE Canada chairperson Paul Morassutti said in a release.

London has about 4.5 million square feet of downtown office space.

The CBRE report also said conversion of office space to residential offers some hope. There are two office conversions underway in London, at 166 Dundas St. and 195 Dufferin Ave., and an application has been submitted for a third at 376 Richmond St., city officials said.

That proposal is for 23 units, seven bachelor and 16 one-bedroom apartments, but has not yet been approved.

“It is a great start and you will see more come forward,” Harris said.

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 In April, Sifton Properties announced it is converting its office building at 195 Dufferin Ave. into 94 residential units, a mix of 80 one-bedroom and 14 two-bedroom units, with 40 per cent offered as affordable units, chief executive Richard Sifton said. The conversion will cost more than $20 million.

The new owners of the former Rexall building at 166-170 Dundas St., on the northeast corner of Dundas and Richmond streets, announced they will convert the top three floors to apartments. The building was bought last year by Maas Group.

The city created a $10-million fund to subsidize office conversions. Developers can receive grants of about $20,000 for each new one-bedroom unit and $28,000 for each new two- or three-bedroom unit created in former office space, to a maximum of $2 million a project.

“The city’s incentive program was the key,” Harris said.

There is no office space under construction either in downtown London or the suburbs, the report said.

Nationally office construction has fallen to 5.7 million square feet, its lowest level since 2005 and well below the 10-year average of 14.6 million square feet.

As for the tight industrial market in the city, London had a slight increase of 1.5 per cent in availability in the second quarter, driven largely by Dancor Construction Ltd.’s completion of new space in east London. Dancor finished a fully leased 97,000-square-feet building at 1285 Hubrey Rd. An additional 671,000 square feet should be completed by year-end.

London has about 41.7 million square feet of industrial space.  

ndebono@postmedia.com

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