Commercial vacancy as high as 36% casts a shadow over downtown Kitchener business

Since the pandemic, Phong Tran has noticed a stark change in downtown Kitchener. 

He lives and works in the core of the southern Ontario city and has co-owned Matter of Taste, a coffee shop on King St. W., for nearly 20 years. 

"On my walk from Queen St. N., 80 per cent of the offices would be occupied," Tran told CBC News.  

"It's completely changed. The amount of people walking is a lot less. A lot of offices have moved on. There's quite a bit of businesses — kind of like on and off. Sometimes they're open, sometimes they're not open."

"It's sad," said Tran.

As 2023 begins, empty storefronts and office towers persist at a rate not seen in years as pandemic pressures, the economy and work-from-home culture take their toll. 

Commerical real estate agents differ on the exact numbers; Colliers International says in the final months of 2022, downtown office vacancy in Kitchener was at 27 per cent. Cushman and Wakefield's numbers show 36.6 per cent — in 2020 it was 20.9.

LISTEN | Vacant office space amounts to nine empty office buildings in the core of downtown Kitchener

"We are still seeing persistent vacancy in some of the newer buildings and some of the buildings where the units are not yet built out," said Benjamin Bach, a vice president with Cushman and Wakefield who specializes in office leasing and sales in Waterloo region.

While restaurant and large corporate space are still hot, units that require a tenant or landlord to spend a lot of money before a business can move in are not. 

"You know, the three to five months of construction — we're definitely seeing a bit more reluctance on those types of suites right now," said Bach.

Goal: Retail vacancy under 5%

Neither Colliers nor Cushman and Wakefield track retail rental vacancy rates, but Darren Becks, the manager of downtown development and innovation for the City of Kitchener, says that is currently between nine and 14 per cent. 

"From my perspective, I'd love to see that number less than five per cent," Becks said.

Work is going from a place to an activity​​​​​- Karl Innanen, Colliers International

"A number of the businesses that are downtown have really felt the impact of the pandemic and the lack of foot traffic — the work from home and conditions in the office environment are contributing to that," said Becks.

The two are intrinsically linked, says Karl Innanen, an executive vice president at Colliers Canada, who has been working in commercial real estate for more than 30 years.

"Work is going from a place to an activity, or a verb," said Innanen, who is based in Kitchener.

He said the empty offices adds up to about 900,000 square feet of vacant real estate. 

"There are a lot fewer people in the downtown core. That 900,000 square feet of vacancy — if it were full, that would be another 5,000 people in the core, walking around, going for coffee, grabbing a lunch, going in that store and saying, 'Wow, that's really cool, I want to buy that.'

"That's the challenge we have right now, getting people back into the downtown core; getting people back to work," said Innanen.

Business is down, foot traffic unpredictable

Tran, who also is a board member for the BIA, says business is down at Matter of Taste.

"We have recovered a lot already and it's still down by 25 per cent," said Tran.

The per-customer spend is up, but foot traffic is unpredictable. Customer patterns aren't what they used to be pre-pandemic when office workers took their regular coffee breaks in the mid-morning and mid-afternoon.

"We have too many people in the shop working and we don't have any customers — and vice versa, when we don't have enough people working, we have a lot of customers," said Tran.

"And I don't think it's going to settle down, at least not for another six months or a year."

Becks agrees that storefront retail has been slow to recover, and that recovery will continue for "some time."

But he says there is room for optimism — leases are getting signed and new businesses are opening. 

"We're seeing some new restaurants open: we've got some on Water Street, a couple on King, a couple down on King East," said Becks.

"I think this is very positive, very local, very diverse and I think that's the piece that's going to make our downtown unique and be attractive."