Following the onset of the COVID-19 global pandemic, the work-from-home movement meant companies could keep the business wheels turning while keeping employees safe and employed.
It’s left many office and commercial spaces empty or drastically underutilized.
While the pandemic itself isn’t the sole factor contributing to high vacancy rates, it has added another dimension to the ongoing concern. Landlords and building owners have faced challenges with helping tenants rationalize their current leases, struggled with re-signing existing leases, and unsure what to do with space nobody wants to use.
The April 19, 2021 Federal Budget featured $101 billion of stimulus as a growth mechanism for Canada’s economy.
This highly anticipated budget was the first in two years and the first following the onset of the COVID-19 global pandemic.
With economic recovery and resiliency top of mind, the federal government proposed various income programs for Canadian workers and tax incentives for businesses amidst provincial lockdowns, rising COVID-19 case numbers, a nationwide vaccine rollout, and general malaise from Canadian taxpayers anxious for things to get back to normal.
The 2021 Budget proposed business tax changes, such as temporary immediate expensing for Canadian-controlled private corporations (CCPCs). Limited to $1.5 million per tax year, the proposal was valid for 100 per cent of capital outlays, effective for property purchased after April 19, 2021 and available for use before January 1, 2024. The $1.5 million deduction limit would be shared among associate members of a group of CCPCs, and included proration for any tax year less than 365 days. The half-year rule for capital cost allowance was to be suspended for eligible properties.
In the summer of 2021, approximately half of Regina and Saskatoon’s downtown workers had returned to the office from their work-from-home stints. Landlords and building owners face a serious question: what happens with unwanted office space?
Will a so-called “office renovation tax credit” really help bring the other half of downtown employees back? Damon Leonard, vice president of sales for HBI Office Plus, says a tax incentive such as the one proposed in the 2021 Budget would help foster communication, collaboration, and creativity between building owners, landlords and tenants. “Downtowns are heavily weighted towards commercial real estate, and this proposed tax incentive served as a great opportunity for our province to develop or redevelop existing assets.”
Leonard points to the lifecycle of office space in both Regina and Saskatoon, noting the need for refreshment. “Regina is not building a lot of new buildings, so that renovation investment allows businesses and property owners to work together to support the current real estate footprint. Ultimately, it’s a chance to ask how they work together to better develop workplace culture, bring employees back to work, and give them the tools and comforts they had at home.”
Post COVID-19, a typical office may include more space per employee, rather than keeping the “sardines-in-a-tin-can” feel of current out-of-date office space. And for some companies, it might not make fiscal sense to redesign or redevelop the existing physical area and therefore opt for a move.
The City of Regina has a bylaw limiting suburban office development unless its downtown vacancy rate is 6.5 per cent or less. ICR Commercial Real Estate‘s third-quarter analysis of the Regina downtown noted a 15.81 per cent vacancy rate, while in suburban areas, this rate was 11.43 per cent. Out of approximately 4.5 million square feet of downtown office space in the Queen City, 803,000 sit empty.
Pre-COVID, Saskatoon’s downtown welcomed 18,000 to 20,000 workers. However, the Bridge City’s supply of office space was over-extended even before COVID. With the expanded room made possible by the River Landing development (an additional 360,000 square feet of office space), ICR notes the third quarter downtown vacancy rate at 13.97 per cent. And with Nutrien’s move to River Landing in late 2021- early 2022, the downtown vacancy rate will increase by another 180,000 square feet, approximately five per cent. Right now, about 500,000 square feet of Saskatoon’s downtown office space sits empty.
With high vacancy rates, every little bit helps. “It’s the businesses downtown that are hurting,” says Leonard. “The restaurants, the shops, the stores … the proposed tax incentive could revitalize more than we think.”
As of September 2021, legislation surrounding the temporary immediate expensing for CCPCs had not been introduced, and until it is readdressed in Parliament, the Canadian Revenue Agency cannot allow the proposed deduction. The Chartered Professional Accountants of Canada says filing amended returns may be possible if the federal government addresses this issue.