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The State of Commercial Real Estate Across Canada

The State of Commercial Real Estate Across Canada

Canada’s commercial real estate market is coming off a strong 2017 supported by a stable economy and healthy fundamentals, but there is a sense that the sector is late in the cycle and a slowdown is inevitable.

That’s the sentiment of Avison Young’s 2018 North America and Europe Commercial Real Estate Forecast.

Bill Argeropoulos, Principal, Practice Leader, Research (Canada) for Avison Young, says the commercial real estate sector is re-evaluating challenges and opportunities in a technologically transforming world – a world that appears to be making a concerted effort to lead, rather than follow.

“Office leasing fundamentals are reasonably sound, and even the challenged markets in Calgary and Edmonton are showing promise. Across the board, demand from traditional sectors is now augmented by growth in the technology sector and the increasingly prominent coworking movement, which is taking a larger share of the leasing pie,” he says.

Argeropoulos says coworking’s rapid growth is a result of a growing number of startups and entrepreneurs as well as rising demand for affordable workplaces and flexible lease terms.

“This growth has the potential to disrupt the office market with new pricing models for office leases and asset valuations. Clearly, building owners will weigh whether this disruption is a benefit or a detriment to their assets,” he says.

“Urban intensification, transit-oriented development, consolidation, technology, workplace design and the war for young talent were common themes that faced occupiers and owners in 2017 and will again in 2018. Ongoing supply-demand imbalances are reflected in varying vacancy rates, development pipelines and rental-rate expectations.”

A report by CBRE, a globally integrated commercial real estate and investment services firm, says the Canadian commercial real estate market enjoyed a banner year in 2017, reaping the rewards of a surging Canadian economy and a year of impressive jobs growth. The office market saw 6.6 million square feet of absorption across the country – a five-year high.

“2017 emerged as a standout year for Canadian commercial real estate and we enter into 2018 with some of the best market fundamentals you can find in any mature market across the globe,” says Werner Dietl, Executive Vice-President and Greater Toronto Area (GTA) Regional Managing Director at CBRE Canada.

According to CBRE, the overall vacancy rate for downtown office space in Canada was 11.1% at the end of 2017 with total inventory at 256.3 million square feet. Interestingly, the vacancy rate in Canada for Class A downtown office space was even lower at 9.6%.

Here’s a look at how CBRE saw the downtown office markets in Canada’s major cities as 2017 came to an end.

Vancouver

“Demand for office space in downtown Vancouver continues to outpace new supply. With only two options over 50,000 square feet currently available downtown, large occupiers currently in the market are finding themselves with limited alternatives. The last major wave of construction from 2015, which resulted in 1.6 million square feet of additional space, has now almost been completely absorbed,” says CBRE.
The downtown vacancy rate at the end of 2017 was 5% while the Class A space was 4.6%.

Calgary

via Pixabay

A collapse in oil prices beginning in the second half of 2014 led to thousands of layoffs in the oil patch, impacting the downtown office market as the city went through two years of recession in 2015 and 2016.

According to CBRE, the vacancy rate in the city’s downtown was a whopping 27.7% at the end of 2017. The Class A vacancy rate was 22.9%.

“In an effort to compete in the current downtown environment, landlords have been cutting up larger floor plates to accommodate smaller-sized tenants,” says CBRE.

Edmonton

The city’s downtown vacancy rate was 18.7% at the end of 2017 and 17.7% in Class A space.
“Almost 200,000 square feet of old and functionally obsolete office space has been removed from the downtown inventory to be repurposed. Additionally, as many as six buildings could be repurposed and redeveloped as a way to attend to a high vacancy rate,” says CBRE.

Winnipeg

by Wpg guy via Wikimedia Commons

The city’s downtown vacancy rate was one of the lowest in Canada at 8.8% with Class A space down to 6.8%.

Toronto

“While Toronto has historically been dominated by the banking, insurance and legal industries, demand from the expanding technology sector reached 21% downtown, bolstering overall tenant demand. Coupled with Toronto’s robust economy, demand from the technology firms have helped push Toronto’s downtown office vacancy rate to another record low of 3.7%,” says CBRE.
“This incredible demand and lack of available space has led to multiple projects being kicked off speculatively in the GTA. Of the market’s 5.1 million square feet of office inventory currently under construction, 2.7 million square feet is speculative.”
Class A vacancy is at a minuscule 3.2%.

 

Ottawa

Ottawa panorama by Ankakay on Flickr

The downtown vacancy rate ended 2017 at a low of 9.5% with Class A space at only 5.4%.

“The Conference Board of Canada forecasts Gross Domestic Product (GDP) growth in the Ottawa-Gatineau region to remain strong, reaching 2.5% in 2017 and 2.2% in 2018, respectively. This growth, fuelled in part by increased federal hiring, the LRT expansion, city construction, and Canada 150 celebrations, represents Ottawa’s strongest back-to-back GDP growth in more than 10 years,” says CBRE.

Montreal

“As the office market gains momentum, landlords remain optimistic in spite of several major blocks of space coming to the market within the short-term. This optimism even extends to refusing deals they consider too small despite significant vacancies within their buildings,” says CBRE.
The overall vacancy rate downtown was 9.7% while the Class A market saw vacancy of 8.4%.

Halifax

By Robert Alfers via Wikimedia Commons

“As the Central Business District (CBD) market experiences a flight to quality movement, tenants are demanding higher quality space with a greater range of local amenities. This trend has negatively impacted Class C assets in the CBD, which saw vacancy rates rise by 120 basis points to 33.6% this quarter,” says CBRE.

The overall downtown vacancy rate was 18.5% at the end of 2017 with the Class A space seeing vacancy at 20.7%.

 

 

 

Written by: Mario Toneguzzi

SOURCE: https://www.realtor.ca/TrendsInsights/PostPage/2022/1362/The-State-of-Commercial-Real-Estate-Across-Canada/

 

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