Canadian Commercial Real Estate Forecast
January 19, 2012
Avison Young has recently released the 2012 Canada, U.S. Forecast, a commercial real estate forecast for 2012. According to the report, Canada’s commercial real estate markets will continue the upward trend from 2012 and maintain its stability.
Mark E. Rose, Chair and CEO of Avison Young notes, “There is a dichotomy in the North American commercial real estate market. Canada is experiencing a period of stability and modest growth, while the United States continues to search for traction in the recovery process.”
“Despite this disparity, things are looking up in both countries as global financial uncertainty is gradually resolved and clarity begins to emerge,” he says.
Both markets had buyers who focused more on safe assets in an attempt to avoid risks in 2011.
“Given the relatively small investable universe in Canada, we continue to notice a growing trend of Canadian buyers heading south of the border,” continues Rose.
He suggests a number of Canadian buyers are indentifying more opportunities for profile expansion in and beyond Canada’s borders, namely into the U.S. While U.S. assets are available for a more attractive price currently, their value is expected to rebound and increase into the coming years, ensuring they are a valuable longer-term hold.
Across the 20 Canadian and U.S markets that Avison Young currently tracks, office vacancy rates have trended lower, decreasing from 14.7 per cent in 2010 to 13.6 per cent in the final months of 2011.
“The double-digit office vacancy doesn’t tell the whole story, however,” comments Bill Argeropoulos, Vice-President and Director of Research for Avison Young Canada. “The performance of the two countries is quite distinct when you break down the figures. While the overall office vacancy rate in Avison Young’s Canadian markets in 2011 settled at a respectable 7.6 per cent, the rate is nearly double in Avison Young’s U.S. markets. This is a clear sign of the different pace of recovery seen in the two countries.”
Mr. Argeropoulos also noted a gap between the two nations' industrial sectors. He says collectively the vacancy rates declined 50 bps between 2010 and 2011, ending 2011 at roughly 8.3 per cent. This suggests that Canada’s market is in much better shape, displaying an overall vacancy rate of 4.9 per cent compared to 9.7 per cent in the U.S.
Confidence within Canada remains high, due to the good results in 2011. To maintain an ongoing improvement, Canada’s businesses and consumers must remain motivated by the underlying fundamentals and not the headlines.
Office
Leasing activity was positive and strong across Canada’s office markets in 2011. Vacancy rates decreased and rental rates trended upward across most of the Canadian markets. The overall office vacancy rate had steadily declined from 9.2 per cent in 2009, to 8.3 per cent in 2010, to 7.6 per cent in the final months of 2011, noting a recovery.
Six of the 12 Canadian markets that Avison Young surveyed experienced a decrease in vacancy rates in 2011. Calgary posted the most impressive improvement since 2010, with vacancy rates falling 340 bps to 7.2 per cent at the end of 2011. Vacancy rates in Vancouver fell to 7.6 per cent, Lethbridge posted 9.4 per cent, Mississauga/GTA West fell to 11. 6 per cent, Toronto was down to 7.9 per cent and Montreal was at 8.6 per cent. The markets that posted a rise in office vacancy rates included Edmonton up to 10 per cent, Winnipeg was up to 6.9 per cent, Ottawa at 5.6 per cent and Quebec City was at 4.7 per cent.
Into 2012, the national office vacancy rate is expected to decline an addition 60 bps to end 2012 in the seven per cent range. Vacancy rates in Montreal and Ottawa are expected to remain steady, meanwhile rates are anticipated to trend lower in Vancouver, Calgary, Edmonton, Lethbridge, Mississauga/GTA West and Toronto. Markets that are anticipated to increase are Regina, Winnipeg, Quebec City and Halifax.
Industrial
Vacancy rates are on a downward trend in most of Canada’s industrial markets, as space is steadily being absorbed. Stability and modest growth are reported nationwide, with some markets anticipating the return of speculative development in 2012.
In 2011, the national industrial vacancy rate ended just below five per cent, compared with 5.5 per cent in 2010 and 6.1 per cent in 2009. Seven of the 11 industrial markets recorded vacancy rates below the national average of 4.9 per cent. Regina boasted the nation’s lowest vacancy rate at 2.1 per cent, which remained static from 2010. Eight of the 10 remaining markets posted declines in vacancy led by a 280-bps drop in Lethbridge to 2.9 per cent. Vacancy rates declined in Ottawa, down to 2.7 per cent, and Montreal, which ended 2011 at 6.2 per cent. Minor declines were noted in Calgary (4.7 per cent), Edmonton (four per cent), Mississauga/GTA West (6.1 per cent), Toronto (five per cent) and Winnipeg (2.4 per cent). Halifax, on the other hand, posted a 100-bps rise in industrial vacancy rates, which climbed up to six per cent. Vancouver came in at 4.6 per cent, which was up 20 bps from 2010.
Continuing on the general trend, 2012 industrial vacancy rates in Canada are forecast to end the year slightly lower, at 4.7 per cent. Vacancy rates are expected to hold firm in Lethbridge (2.9 per cent) and Montreal (6.2 per cent); increase in Ottawa (to 3.3 per cent) and Regina (2.4 per cent); and decline in Halifax (five per cent), Mississauga/GTA West (5.5 per cent), Calgary (4.2 per cent) Vancouver (4.2 per cent), Edmonton (3.8 per cent), Toronto (4.8 per cent) and Winnipeg (2.3 per cent).
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