The Impact of Empty Office Spaces on Real Estate and Housing
The COVID-19 pandemic has had a lasting impact on various aspects of our lives, including the demand for commercial office space. Many people initially believed that as life returned to normal, so would the need to be back in the office full-time. However, this assumption proved to be incorrect, as the office vacancy rate in almost every major Canadian city continues to increase. In the second quarter of this year, the office vacancy rate in Canada reached a staggering 18.1 percent, a clear indicator of the lack of demand for commercial office space.
This new reality poses significant challenges for the firms that own office towers. It leaves them with empty spaces and exorbitant costs, which in turn affects their ability to service loans and impacts banks. Additionally, investors who have put money into the sector also face potential losses. Observers fear that this could spark a new financial crisis, highlighting the severity of the situation.
However, there is a potential solution that could not only help avert a commercial real estate disaster but also address another pressing issue, the housing crisis. Currently, hundreds of zoning restrictions prevent firms from converting commercial offices into mixed-use facilities or residential units, despite the urgent demand for such spaces. By unzoning or rezoning these commercial spaces, local governments can provide much-needed flexibility to the industry and help it survive.
Cities can also consider granting tax breaks to offset the costs of conversion, which can be high due to inherent technical challenges. By relaxing zoning regulations for commercial spaces, cities can increase the housing stock by allowing the development of mixed-use or residential units. This would be particularly beneficial for cities like Vancouver and Toronto, where the supply of housing has never kept up with demand, resulting in extremely low residential vacancy rates and skyrocketing rental prices.
Rezoning empty office spaces would not only provide a solution to the commercial real estate crisis but also address the housing shortage. It would help increase the housing stock, alleviate pressure on home prices, and make rental prices more affordable citywide. Furthermore, rezoning existing buildings would likely face fewer roadblocks than new developments, which often encounter opposition from NIMBY (Not In My Backyard) activists based on trivial concerns like a building’s height or shadow.
The pandemic has created a new reality for the workforce, demonstrating the viability of working from home or having a hybrid work model. As white-collar jobs shifted to remote work, employers realized that productivity can be maintained, even with employees working from home. Many companies, including Shopify, have already made the decision to forgo expensive downtown office spaces, and more corporate entities are likely to follow suit.
The future of work is expected to involve a hybrid model, where employees split their time between remote work and going into the office. This reduction in the need for office space presents an opportunity for rezoning empty office buildings and repurposing them for residential or mixed-use purposes. It is a win-win scenario that can help local governments avoid a commercial real estate disaster while making housing more affordable for residents.
In conclusion, the lack of demand for commercial office space is a pressing issue that needs to be addressed. Rezoning or unzoning empty office spaces to allow for residential or mixed-use development can help the real estate industry survive and simultaneously address the housing crisis. By providing flexibility to building owners and increasing the housing stock, local governments can mitigate the potential impact of empty office spaces while making housing more affordable for their residents.