Canadian businesses continue to face cost-related obstacles in the second quarter of 2024, according to the latest data from the Canadian Survey on Business Conditions. More than half (54.4%) expect rising inflation to be their leading challenge, while the second most-expected obstacle is the rising cost of inputs (44.6%).
For a sizeable proportion of businesses, whether to stay in their current location or move to another is a decision that is fast approaching—and could come with a higher price tag.
Nearly half (49.1%) of all businesses and organizations lease the location used for their operations, and of those, more than one in six (17.8%) had less than one year remaining on their lease, while nearly half (47.9%) had between one and three years left.
Those who leased were most likely to have a gross rent lease (single fixed payment to landlord) (51.0%), followed by a triple net lease (tenant typically pays all expenses including taxes, insurance and maintenance) (24.6%).
Many small businesses up for renewal
Among small businesses with one to four employees who leased the location used for their operations, nearly one-quarter (23.5%) had less than a year remaining on their current lease in the second quarter of 2024, while nearly half (49.9%) had three to five years left.
As well, close to three in five of these businesses (57.5%) signed for a lease of less than five years.
Certain sectors, non-profits more likely to have expiring leases
Among businesses who were leasing a space, more than one in five businesses in health care and social assistance (22.1%) had less than a year left on their lease, as did those in professional, scientific and technical services (21.2%); and arts, entertainment and recreation (20.9%). More than one in four non-profit organizations (26.5%) had less than a year to go on their lease.
Leasing and other real estate issues
Among all businesses and organizations—whether they are leasing a space or not—the rising cost of insurance was the most common real estate obstacle (45.3%), followed by rising costs for maintenance and repairs (43.6%), and rising property taxes (37.9%).
Finding suitable premises was raised as an issue for 5.8% of businesses, while 2.5% said they had complex or unclear commercial leasing arrangements, and 1.8% reported disputes with their commercial landlord—indications of what some businesses must consider when deciding whether to stay put or find another space.
Prices to lease space increase
According to the Commercial Rents Services Price Index, lease rates for space in office buildings increased 1.0% at the national level in the fourth quarter of 2023, compared with the same quarter of 2022.
Prices to lease space in retail buildings increased 2.8% over the same period, and by 3.2% for space in industrial buildings and warehouses.
The gap between types was most pronounced in Alberta, where prices increased for retail space (+5.9%) compared with no change for office space.
The price to lease retail space (+4.2%) and space in industrial buildings and warehouses (+3.8%) increased at a faster pace than for office space (+0.7%) in Toronto, where Canada’s largest concentration of office space is. This could be explained, in part, by less demand for office space because of more telework. In the third quarter of 2021, amid the COVID-19 pandemic, 14.7% of all businesses and organizations across Canada anticipated shrinking office locations because of the workforce teleworking, with sector-specific rates as high as 29.8% for information and cultural industries, which have high telework potential.
A year later, in the third quarter of 2022, more than one in five businesses and organizations (22.7%) across all sectors included the option to work from home or hybrid in their long-term plans because of COVID-19, while 5.1% planned to reduce their physical space used.
In the second quarter of 2024, an average of 14.8% of businesses in the professional, scientific and technical services sector anticipated their workforce to work remotely most hours, followed by information and cultural industries (9.4%), and finance and insurance (7.4%). Among all businesses, the average was 5.8%.
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