Office vacancies soar in downtown London, Ont., a daunting sign for a core looking to bounce back

A new report from commercial realty firm CBREsays nearly one in three offices in downtown London, Ont.are empty as the commercial vacancy rate soared during the pandemic.The statistic underscoreshow the sudden shift to remote work has turned the city's commercial real estate market upside down.

London's downtown commercial vacancy rate rose by 10 per cent between the pandemic years of 2020 and 2022, according to the report, bringing the ratio of empty to working officesto 28 per cent,nearlydouble the national average of 15.6.

CBRE said in its 2022 Canadian Commercial Real Estate Outlook that the exodus by commercial tenants in the city's core would likely continue on an "upward trend." Much of it the result of local employers offering greater flexibility to workers as the pandemic recedes and they recalculate their need for space.

The report said many of them would eye the city's suburban office parks for shorter commutes, newer buildings and a lack of parking fees.Suburban office vacancies declined from 7.2 per cent last year to 6.4 per cent this year, according to the report,far lower than the national average of 15.7 per cent.

Vacancies predicted to go 'north of 30' per cent

The realityhas Farhi Holdings Corporation, one of the city's biggest commercial landlords, predicting office vacancy rates will likely rise "north of 30 per cent" within a few months.

Company spokesman Ben Farhi would not agree to answer questions by telephone, but in a statementemailed to CBC News, the company saidthat in order to revitalize the core, the city needs to solve its simmering illicit drug crisis, which has not only worsenedbut become more visible since the pandemic began.

Farhiwrote thatincreasing the amount of reserved parking in the downtown core andlimiting the amount of office space that can be built in the suburbs would also help the situation.

Except, the city hasn't added office space in years. Between 2020 and 2022, the realty reportnoted the supply of office space in London has remained flat at 1.61 million square feet.

Few other major Canadian citiesmust confront the problem ofvacant downtown office space more so than London, only Calgary, with a vacancy rate of 33 per cent scored higher, amongthe 10 Canadian cities listed in the CBRE report.

Offices once sustained shops and restaurants

Before the pandemic, those offices helped sustain a large section of the city's economy, including shops and restaurants, a number of which have been boarded up and plastered with "for lease" signs, which have perhaps become the most visible sign of the downtown's dire economic situation.

Barbara Maly, the executive director of the Downtown London Business Improvement Area, said the office workers would be missed by the shops and restaurants that catered to them, but she also pointed to new opportunities, namely the residential population downtown,which grew by 10 per cent in the last census. That population could continue to grow as high-rise life becomes a more practical alternative to London'sincreasingly expensive suburban home.

"I think that's a captive audience our merchants can look forward to serving as those condo developments take shape."

Maly said Downtown Londonand other organizations, including the London Economic Development Corporation, the City of London and the London Chamber of Commerce, are looking at new approaches to stem the bleeding of tenants from the core.

Part of the strategy involves building an environment thatallows business the opportunity to blend with culture, according to Graham Henderson, the CEO of the city's Chamber of Commerce.

He said the city has already laid some of the foundations by having London declared Canada's firstUNESCO City of Music and the refurbishment of Dundas Place, but more is needed.

"We definitely need to fill those offices. They're not going to fill by themselves," he said. "They're going to fill up if there's a thriving, bustling, downtown environment."

Henderson said some of the downtown's social problems could be addressed by city hallgiving developers more leeway on new projects in exchange for affordable housing, protecting heritage buildings and sponsoring cultural, music and sporting events.

"It creates a safer environment. People spill out of shows at 10 or 11 o'clock at night," he said. "If you create a great downtown, people will come there."