Office commercial real estate in Lethbridge is somewhat insulated from the larger market trends due to being both a small market with more local anomalies, and with most office sales being driven by owner-users over investors. In Lethbridge, the recovery of the office sector may have lagged behind other asset classes initially, but we are now seeing vacancy coming down and rental rates experiencing moderate growth. The shift in sentiments among office users, termed the ‘Flight to Quality,’ sees new spaces being designed to accommodate the needs of the employee with the intention of enhancing the culture of the business itself through amenities and design elements. New office development is emerging primarily in mixed-use plazas where office users, and especially medical office users, are occupying main floor retail spaces.
B-and C-Class office space represent the majority of vacancy in Lethbridge, where aged space is in need of redevelopment to attract modern users. These spaces are instead being considered more and more frequently by non-traditional users who can partially utilize the office buildout and keep construction costs down. Currently, a standard office buildout from shell space costs effectively twice the pre-pandemic average due to the inflated costs of building materials. However, as the Canadian economy cools and inflation comes down, we are expecting to see more, consistent growth in our local market as costs better align with demand.
Three key trends:
01 – Flight to quality
Office users have undergone a significant mentality shift since the Pandemic. The inclusion of hybrid work in the modern workplace and the new ‘way we work’ have contributed to office users prioritizing the quality of the office space over the per-square-foot cost. Flexible, adaptable, beautiful spaces with lots of amenities are in demand, including coworking and hybrid spaces.
02 – Adaptive reuse
Adaptive reuse in Lethbridge may not overtly follow the capital market trend, but instead our smaller market can adapt quickly based on local demand. Office space in Lethbridge has become an option for non-traditional tenants who are utilizing office build out to lower costs. Adaptive reuse projects may become more ambitious in the near future if demand increases and better aligns with the cost of redevelopment.
03 – Inflation and cost to build
The high CPI inflation rate has been in moderate decline from its peak during the Pandemic due to the Bank of Canada's targeted interest rate increases. However, the cost of building materials and skilled labour has remained high and have slowed new product coming to market. While lease rates have remained steady in Lethbridge, tenant inducements have become an expectation of new leases as a way of incentivizing users to take on the cost of building out their space.
Downtown office vacancy
of downtown available office space as of Q3 2023
Suburban office vacancy
of suburban available office space as of Q3 2023
Average asking net rental rate
per sf, per year as of Q3 2023
Average additional rent
per sf, per year as of Q3 2023
Estimated planned construction
new office builds planned as of Q3 2023
1.2 M SF
estimated total office inventory in the Lethbridge market
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