London office vacancy jumps again as companies seek newer buildings

London's vacancy rate for downtown office buildings is projected to grow for the third straight year, while the mayor is promising new efforts to help reverse the trend. 

The city is dealing with "staggeringly high vacancy and a lack of demand," according to a new report by the realty firm Commercial Real Estate Services (CBRE). London's downtown office vacancy rate is forecast to hit 33 per cent this year, the report said. It was 31.7 per cent in 2024 and 28.5 per cent in 2023. 

The report, which studied markets across Canada, pointed to a issue that has already been flagged in London: Dropping demand for older office buildings. 

Some companies need less office space with more of their employees now working from home, the report said. However at the same time, many of those companies also have a desire to move to upgraded spaces in newer buildings. This is being pushed by a desire to make their workspaces more inviting to entice workers away from the home office.

The report calls the trend a "flight to experience" for newer builders.

London's older office buildings a challenge

A challenge in London is that much of its downtown office building stock is older. Office buildings are broken down into Class A, B and C, with Class A being the newest buildings and class B and C being older properties that are less in demand.

A city report from May 2023 found that about 75 per cent of London's vacant office space falls into the Class B or class C category.

Greg Harris, an associate vice-president and broker with CBRE, said the only future for some of London's older, empty commercial buildings may be as "tear downs for redevelopment."

"We're expecting the market to stabilize and then it's going to be a question of investment and re-thinking how some of these properties can be better utilized instead of office space," Harris said.

Harris said he believes residential buildings now under construction and close to completion in the core should help put "feet on the street" and entice more employers to stay downtown.

We're working to fix it, says mayor 

Mayor Josh Morgan said the city is working to reverse the trend toward higher office vacancies.

"We're not going to sit by and do nothing," he said Tuesday. "We know we have a challenge. We know we have a legacy problem and we're going to address it. But I'm going to be frank: It will take time." 

Morgan pointed to the office conversion program, which provides incentives for developers to turn vacant office buildings into residences, either apartments or condominiums. 

The city has had some uptake on the program, including 166 Dundas St. and 195 Dufferin Ave. However those conversions are expensive: The Dufferin Avenue conversion will require $3.3 million in incentives from the federal Housing Accelerator Program. 

Morgan admits that some empty office buildings won't be viable conversion candidates. Harris said often only 30 per cent of empty buildings are viable for conversion.

In addition to a move away from older buildings, the CBRE report said many companies are looking to rent in suburbs, where they're more likely to find newer buildings and easier access to parking.

Morgan said he expects more conversion applications in the new year. He also said he'll announce new measures to address office vacancies at next week's State of the City address. 

Cafe owner says lunch traffic still down

Meanwhile, businesses that cater to the office crowd continue to work to stay afloat in a fast-changing environment.

Thomas Sandick owns two food businesses on the ground floor of the TD Towers office building at the corner of Wellington and Dundas Streets. One is Gourmet Deli where he serves hot food; the other is Mercantile Fine Foods which sells specialty grocery items.

Lunch traffic makes up 85 per cent of Sandick's business. And while business is brisk, it's not returned to pre-COVID levels. 

"Back then you would see the same people two or three times a week, and it was like that for 25 years," he said. "Now you're lucky to see them once a week."   

Sandick said any reduction in office workers in the floors above him has a direct impact on his bottom line. He hopes the city can find new ways to keep office workers in the core.

"I need an office that had 150 people in it before ... to still have 150 people in it," he said.