Lethbridge office market report

The Lethbridge office market is divided between old and new office space, with office tenants increasingly favouring newer, high-quality builds despite the higher psf lease rates associated with construction inflation and a decreasing national vacancy rate. This shift in demand is termed as the “flight to quality”. In 2023, the construction cycle was experiencing a growth period resulting in a high number of new office spaces added to the market. Since then, there has been a slowdown in office construction.

Most of the vacant office space in Lethbridge is found in downtown office towers, which tend to be older and require significant renovations to attract new tenants. In contrast, suburban developments are typically newer and more appealing despite having higher lease rates. The gross lease rate in the Lethbridge downtown core averages $24.34 psf whereas suburban areas are averaging $31.75 psf.
Despite an anticipated slowdown in new builds, office space in Lethbridge continues to be in demand and tenants are prepared to pay higher lease rates for these high-quality spaces. As the economy begins to moderately ease down, office tenants in Lethbridge will likely see new space come to market by the end of 2024.
 

Three key trends:

 

01 – Flight to ‘new’

Following the trend of “flight to quality”, new office construction has predominately been owner-users, however recent developments in the community have been building office space on spec. In Q1 2024, 1.7 msf of new office supply was completed, with no new projects breaking ground in Q2 2024. With continued demand for office space, the Lethbridge office market will likely either see higher absorption
or increased new development.
 

02 – Inventory vs. vacancy

In most major markets, downtown areas generally have a higher vacancy rate compared to suburban areas, as suburban spaces are newer and more appealing to office workers who reside in the surrounding areas. In Lethbridge, suburban spaces account for just over a quarter of the total available inventory. Currently, Lethbridge has an approximate office inventory of 1.3 msf, with 134,000 vacant sf.

03 – Economic trends

In Lethbridge, CRE transactions have remained steady among owner-users and investors. A notable trend includes new office developments being integrated into flexible mixed-use plazas, appealing to a variety of users. With construction inflation and overall CPI easing, along with the recent BOC overnight interest rate drop to 4.75% from 5%, this sentiment may strengthen in the near future.