National Office Vacancy Rates Decline in 2011
January 5, 2012
Canada had declining vacancy rates in most major markets according to the National Office Trends, Fourth Quarter Report from Cushman & Wakefield Canada, indicating a strong year in the commercial real estate sector.
Class A office vacancy rates continued to drop at a relatively rapid rate across the country, ending up at 4.7 per cent in the fourth quarter of 2011 from 6.8 per cent in the same quarter of 2010. National office vacancy rates went from 8.8 per cent in Q4 2010 to 7.3 per cent in Q4 2011.
Pierre Bergevin, President and CEO of Cushman & Wakefield Canada says of the decline, “With forecasted economic growth for Canada at just under three per cent in 2012, demand for office space will remain steady, increasing pressure for new property developments, especially in the Calgary and Vancouver markets.”
Vancouver
Central Vancouver's office vacancy rates in the fourth quarter remain flat at 3.7 per cent from 2010 to 2011, yet the downtown core saw office vacancy rates decline from 8.1 per cent in the fourth quarter of 2010 to 7.5 per cent in 2011. Overall Class A inventory in the downtown core remained steady at 2.8 per cent.
“The downtown market is very tight right now, giving few options to tenants looking to expand or relocate in the Class A or AAA categories,” notes Senior Vice President of Office Leasing, Mark Chambers. “This has tenants finding alternative ways to make sure of existing facilities and becoming more efficient, which is a trend that will likely continue until we see relief in the market by way of new construction (new buildings won’t be coming until 2014 and 2015).”
Calgary
Vacancy rates dropped a significant amount in Central Calgary, from 12.3 per cent in the fourth quarter of 2010 to 3.9 per cent in the fourth quarter of 2011. This drop was the strongest demand of any major Canadian market.
“Energy sector growth fueling the demand for space and record absorption has caused the owners of Eighth Avenue Place to announce construction of the 850,000-square-foot second tower of Eighth Avenue Place,” says Bob MacDougall, Senior Managing Director of Cushman & Wakefield Calgary.
“This is welcome news for beleaguered tenants. The announcement may also trigger construction starts from some other prospective downtown developers including Oxford, Cadillac Fairview and Matthews Southwest (The Bow Phase II)… In any case, relief in the downtown core is at least 30 months away so space solutions for major tenant requirements in the near term will be coming from the beltline and suburban markets.”
Winnipeg
Posting a significant decrease in Class A office vacancy from 6.7 per cent to 4.8 per cent in between the fourth quarters of 2010 and 2011, there was strong demand for the most desirable space. Central Winnipeg’s office vacancy rate remained virtually unchanged, at eight per cent.
“Momentum in Winnipeg’s downtown office market is very positive. The combination of several factors, (such as the downtown revitalization, the expansion of the convention centre and the return of the Winnipeg Jets) is making the core more appealing to business as a whole,” says Senior Executive Vice President of Cushman & Wakefield Winnipeg, Ken Yee. “As businesses move downtown and move up office space classes in order to take advantage of renovations and new office builds, class A office space will continue to be in high demand. However, we also anticipate that overall vacancies will increase over the next few quarters as the market adjusts to the newly available office space in Winnipeg as a whole.”
Toronto
Office vacancy for all classes declined in Toronto from five per cent in 2010 to 4.7 per cent in 2011. The Class A market declined to 4.5 per cent.
Paul Morse, Senior Managing Director of Office Leasing said, “Given the low vacancy environment, we are seeing upward pressure on rental rates going in to 2012 and the likelihood that new office developments will be announced in 2012. We need new office buildings downtown to alleviate the pent up demand and create additional supply of modern and functional office space.”
The year-to-date absorption rates in the suburbs represent a very active year with nominal increase in activity compared with 2010, rounding out at 850,000 square feet with the vacancy rate at 8.4 per cent.
Ottawa
Central Ottawa saw vacancy rates increase slightly from 5.1 per cent in the third quarter of 2011 to 5.6 per cent in the fourth quarter, yet the market remains active despite the increase. The increase in vacancy can partly be attributed to the new EDC Building, which added 80,000 square feet of sublet space to the central market.
“This quarter was quiet for the most part with no major transactions closing in the central market,” notes Alain Desmarais, Senior Managing Director of Cushman & Wakefield Ottawa. “This is not a sign of a slowing in demand, however.”
Montreal
Overall office vacancy fell from 9.2 per cent in the fourth quarter of 2010 to 7.9 per cent in 2011. The market in Montreal is still characterized by almost non-existent options for contiguous space of 50,000 square feet of larger. The central market vacancy rates dropped from eight per cent in the fourth quarter of 2010 to 6.4 per cent in 2011.
Louis Burgos, Senior Managing Director of Cushman and Wakefield Montreal says, “Montreal had a great year overall compared to 2010, however the fourth quarter was slightly less active than we had expected. Though the slowdown in market activity hasn’t been drastic, global economic uncertainty and the European debt crisis have both played a major role.”
Atlantic Canada: Halifax, Moncton, Fredericton, Saint John
Halifax’s Class A office vacancy rates declined from 13 per cent in the fourth quarter of 2010 to 9.8 per cent in 2011. However, overall office vacancy increased slightly to 8.8 per cent from 8.4 per cent in Q4 2010.
“These movements in ‘market class’ reflect an overall flight to quality due to the fact that class A office space remains relatively affordable in Halifax,” comments Bill MacAvoy, Managing Director of Cushman and Wakefield Atlantic. “Though award of the Canadian Government’s shipbuilding contract to Irving Shipbuilding is good news for the region, it remains to be seen the extent to which professional firms (such as engineering firms) will be contracted locally to service these contracts. In many ways, the award of this contract removes the downside risk for the local market.”
Moncton’s office vacancy rate increased from 8 per cent in 2010 to 9.3 per cent in 2011, with 34,863 square feet of office space being returned to the market.
Vacancy rates increased on a year-over-year basis in Fredericton, increasing from 3.8 per cent to five per cent in 2011. However, there was a total of 45,000 square feet of new space added to the market in 2011.
Saint John had a slight increase in office vacancy, going up to 11.3 per cent in 2011 from 10.8 per cent in 2010.
“The Saint John market is nearing the end of its “hangover” from 2006/2007 when office space was significantly overbuilt in anticipation of large projects that did not materialize. The pace of negative absorption of office space has cooled off considerably and it is anticipated that the market will come back into balance in the near term,” Notes MacAvoy.
“Overall, the economy in Atlantic Canada has been lagging Canada for a number of years. However, the regional economy didn’t contract in 2008/2009 to the extent that was seen in the rest of the country. Due to good regional economic fundamentals, we anticipate that the region as a whole will continue to improve and the demand for office space will continue to strengthen over the next few quarters.”
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