High office vacancy rates spell continuing trouble for shops dependent on worker foot traffic

Businesses that depend on the flow of office workers are struggling as vacancy rates in office towers across Canada continue to rise. Vancouver's office tower vacancy rate has tripled since 2019, while Montreal's has doubled. 

"Is it scary? Yes, it's definitely scary," said Fatima Santos, who runs Saudade, a small shop under Toronto's Union Station that sells housewares imported from Portugal.

Santos picked the location because it catered to commuters travelling to and from downtown. The shop officially opened in March of 2020, the same day the provincial government shut down all non-essential businesses.

Santos reopened this year, hoping things were getting back to normal, but what counts for normal these days doesn't stack up to pre-pandemic expectations.

"We see our sales going up and we're seeing a lot more foot traffic. But is it pre-pandemic [levels]? No. But is it getting better? Yes," she told CBC News.

That story is playing out across the country for businesses lining the underground paths and side streets that connect office towers and depend on the flow of workers in and out of downtown cores. In just about every major city in Canada, they've seen a dramatic collapse of customers.

Health restrictions that shut offices down in 2020 have long since expired. But the return to the office has been slower than anyone could have expected. And many experts say it's not going to get better quickly.

"I think the days of coming in, sitting at your desk and [working] nine to five are over," said Raymond Wong, operations vice-president in charge of data at the commercial real estate firm Altus Group.

Office vacancy rate data compiled by Altus Group shows a grim trend.

Toronto's rate has climbed about 10 percentage points. It was at 4.2 per cent in the fourth quarter of 2019. Today, it's 14.7 per cent. Vancouver's rate nearly tripled from 4.1 per cent pre-pandemic to 11.5 per cent today.

Montreal's vacancy rate went from 9.5 per cent in 2019 to 17.4 per cent today and at least one report suggests it may climb to 29 per cent by 2027.

Wong says one force driving the high vacancy rate is Canada's red-hot labour market.

"With a very low unemployment rate, people have choices," Wong told CBC News.

He says with the unemployment rate so low, workers can make more demands. If an employer decides to force people back to the office, they have options.

"Are you really going to force me back into the office? Well, I don't have to. I'd rather go to a firm that allows me the flexibility to work from home," said Wong.

Add to that trend, major employers are looking to get out of corporate leases.

Canadian tech giant Shopify has scrapped plans to move into a 243,000-square-foot space in downtown Toronto. Shopify laid off 10 per cent of its staff this fall and says it will focus on remote work.

"We have a bold vision for the future of work at Shopify, and are no longer a workforce that centres around a physical workplace for day-to-day work," spokesperson Alex Lyons told CBC News.

RioCan, the corporate landlord, said Shopify would still have to pay for the space. 

"While we were looking forward to welcoming Shopify at the Well, their recent decision will not have a financial impact on the project, as Shopify is bound by the terms of their lease agreement until March 2037," RioCan told CBC News in a statement.

While it's not a blow to the landlord in this case, experts say landlords are going to have to adapt to this new environment.

Luciano D'lorio is the regional president and managing partner at the commercial real estate firm CDNGLOBAL Québec.

He says employees are willing to come back to the office, but to accomplish that, landlords need to think differently.

"You've got to give them experiences," he said. 

Simply providing a desk and an internet connection isn't enough. D'lorio says workers have grown accustomed to working from home. Drawing them back into an office space will require landlords to consider what those workers need.

"Having daycare facilities for children, having gyms and showers so that people can bike in and allowing people that flexibility," D'lorio told CBC.

Whether you're a corporate landlord or a small retailer dependent on workers flooding back into the office, adapting is a key part of any business. 

Fatima Santos is selling more of her products online and trying to cater more to local residents who live downtown instead of the commuters who once rushed by her location in huge numbers.

"We're adapting, we're surviving," she said.

These past 33 months have been tough on businesses of all sizes. The next six months won't get any easier. Most forecasts assume the economy is headed into a recession early next year.

Yet Santos remains hopeful, even optimistic that things will get better eventually.

"We hope so," she said. "That's all I have. That's all we can say: 'We hope so.'"