Report finds office leases got longer in Q2

Lease terms for Canadian offices got longer in the second quarter of the year, according to a new report.

A release from Avison Young this month said the average length of an office lease in Canada hit 60 months during the second quarter of 2023, up from the 56-month average term from the previous quarter.

Momentum for national office leases also appeared to continue accelerating, as average lease terms extended to 64 months during the month of July.

REVERSING TREND

The report said the longer office lease terms showed a “reversing trend” when compared to previous years.

“In 2020, the average term saw a sharp drop as COVID-19 forced companies to adopt work-from-home policies and decision makers opted for shorter term leases to buy time,” the report said.

Before the COVID-19 pandemic, from 2015 to 2019, Avison Young said the average length of office lease terms was 72 months. However, the report said that lease term lengths fell in 2020 as “companies adopted work-from-home policies and opted for shorter lease terms to buy time, given uncertainty.”

Findings from Avison Young’s report mark a potential change in Canada’s office leasing market as companies navigate in-person versus remote or hybrid working arrangements. According to a July report from CBRE, Canada’s office vacancy rate recently hit the highest level since 1994.

CBRE said the nation’s vacancy rate reached 18.1 per cent during the second quarter, rising from 17.8 per cent in the previous quarter.

“Canadian office markets are grappling with a perfect storm of a recession threat, interest rate hikes, tech sector weakness, tenants rightsizing and new supply of office space,” CBRE said in a news release.

“All of this is compounded by the continued uncertainty around remote work.”

With files from the Canadian Press.