Lethbridge office market to see an increase in new developments

Lethbridge, Alberta – Avison Young’s latest Lethbridge office market report predicts that the demand for new high-quality office spaces will continue to grow, following the “flight to quality” trend of low vacancy and higher lease rates in new builds. Overall vacancy continues to trend downward, and lease rates in both downtown and suburban office space have had moderate growth year over year. Office tenants in Lethbridge will likely see new space come to market by the end of 2024.

The Lethbridge office market is polarized between old and new space, with gross lease rates in newer suburban developments averaging $31.75 per-square-foot (psf), more than $5+ psf higher than office space in the downtown core, which averages $24.34 psf. The downtown Lethbridge office vacancy rate is 11.33%, double the 5.82% vacancy rate in suburban office space.
“Landlords looking to attract modern tenants need to invest in improvements that will increase the asset’s appeal and help grow its profitability over time,” said Ashley Soames, Senior Associate in Avison Young’s Lethbridge office.

Although downtown office spaces are close to amenities and are easily accessible, suburban spaces are typically newer and more appealing to office workers who reside in the surrounding areas. Tenants are prepared to pay higher lease rates for these quality spaces. With construction inflation and overall Consumer Price Index easing, there is new investment in the development of office space.

“With construction inflation still significantly affecting development overhead, the expectations for market rents have been adjusted accordingly, and tenants looking for newly built office space seem to understand that,” said Jeremy Roden, Executive Vice President in Avison Young’s Lethbridge office.

Remote work and hybrid work are not necessarily the main reason for shrinking office footprints, particularly in Lethbridge. As office users adapt to a changeable business outlook, office users are increasingly downsizing their footprints to better control costs. Similarly, tenants are seeking more flexible lease terms, often with inducements or incentives.

“Because Lethbridge is a ’15-minute city,’ a reduction in office footprints would not likely be a result of hybrid working arrangements,” added Ashley Soames.

Market sentiment towards office real estate is beginning to shift in Lethbridge as investors view office space as an important component of new mixed-use developments. The strength of the local office market and the flexibility of mixed-use spaces appeal to a variety of users. Despite an anticipated slowdown in new office builds nationally, the Lethbridge office market can expect new development in 2024.