Market for office space holds up
New Projects Coming
Eric Beauchesne, Canwest News Service
New Projects Coming
Eric Beauchesne, Canwest News Service
Published: Wednesday, December 24, 2008
Office space in Canada's major cities is still relatively tight, putting the market in good shape to weather the recession, though Calgary and Toronto face more challenging times than others, according to a report yesterday by the Canadian arm of a global real-estate firm.
"Canada's office market is well positioned going into the projected recession, thanks to its strong performance during recent years that drove vacancy rates down to historically low levels and continued to drive rents higher through 2008," said Colliers International in Canada in its report on office space in six major Canadian cities -- Montreal, Ottawa, Toronto, Calgary, Edmonton and Vancouver.
"These strong market indicators, coupled with a limited supply of new office space in most markets, will help the office market to weather the current economic slowdown," the report said.
However, because of the long lead time on new real-estate developments, this means that several million square feet of new office space will be coming on the market in difficult times in Toronto and Calgary, posing additional challenges in those markets, cautioned Ian MacCulloch, vice-president, research, with Colliers International in Canada. Unlike the trend elsewhere, office vacancy rates in Calgary have been on the rise over the past year, the report noted.
The global economic slowdown, which has driven down the price of oil and hurt the Canadian energy sector, is expected to have a ripple effect on the demand for office space in Calgary, where vacancy rates have been on the rise over the past year, it noted.
"Similarly, yet for reasons related to the financial sector, the Toronto office market is expected to share the same future," Colliers said.
While the vacancy rate in Toronto declined over the past year and rents continued to escalate, softening demand due to weak economic conditions plus the new space coming on stream will pose challenges for some of the prestigious towers in the city's financial district during 2009 and 2010, it said.
The markets for office space in the other four cities are expected to weather the recession better.
Without any significant new projects planned in Vancouver's downtown area until at least 2012, that market is in a good position to mitigate challenging economic conditions, the report said, noting that another positive factor is the 2010 Olympic Games, which has created demand for office space.
The market in Edmonton, like Calgary, will be hurt by the slump in oil prices, but a relatively low vacancy rate should provide some stability in the months to come, Colliers said.
Ottawa, like Calgary, saw a rise in its vacancy rate over the past 12 months, but the market is expected to remain solid thanks to the stabilizing presence of the federal government, although a slight increase in vacancies is expected, due primarily to new supply and some space-juggling before it is absorbed relatively quickly, by both the private and public sectors.
The market in Montreal is expected to hold steady, with no new supply of space coming on market and a drop in the vacancy rate.
Meanwhile, another factor that will drive office vacancy rates upward in some cities is the emergence of underutilized space held by companies, Mr. MacCulloch said.
"While the economy flourished, tenants tended to snap up additional space that became available in their buildings to accommodate future growth," he noted. "However, as the economic conditions continue to deteriorate, companies will look for ways to adjust operating expenses, releasing this underutilized office space back to the market in the form of sublets."
That will at least temporarily boost vacancy rates, he added.
"Canada's office market is well positioned going into the projected recession, thanks to its strong performance during recent years that drove vacancy rates down to historically low levels and continued to drive rents higher through 2008," said Colliers International in Canada in its report on office space in six major Canadian cities -- Montreal, Ottawa, Toronto, Calgary, Edmonton and Vancouver.
"These strong market indicators, coupled with a limited supply of new office space in most markets, will help the office market to weather the current economic slowdown," the report said.
However, because of the long lead time on new real-estate developments, this means that several million square feet of new office space will be coming on the market in difficult times in Toronto and Calgary, posing additional challenges in those markets, cautioned Ian MacCulloch, vice-president, research, with Colliers International in Canada. Unlike the trend elsewhere, office vacancy rates in Calgary have been on the rise over the past year, the report noted.
The global economic slowdown, which has driven down the price of oil and hurt the Canadian energy sector, is expected to have a ripple effect on the demand for office space in Calgary, where vacancy rates have been on the rise over the past year, it noted.
"Similarly, yet for reasons related to the financial sector, the Toronto office market is expected to share the same future," Colliers said.
While the vacancy rate in Toronto declined over the past year and rents continued to escalate, softening demand due to weak economic conditions plus the new space coming on stream will pose challenges for some of the prestigious towers in the city's financial district during 2009 and 2010, it said.
The markets for office space in the other four cities are expected to weather the recession better.
Without any significant new projects planned in Vancouver's downtown area until at least 2012, that market is in a good position to mitigate challenging economic conditions, the report said, noting that another positive factor is the 2010 Olympic Games, which has created demand for office space.
The market in Edmonton, like Calgary, will be hurt by the slump in oil prices, but a relatively low vacancy rate should provide some stability in the months to come, Colliers said.
Ottawa, like Calgary, saw a rise in its vacancy rate over the past 12 months, but the market is expected to remain solid thanks to the stabilizing presence of the federal government, although a slight increase in vacancies is expected, due primarily to new supply and some space-juggling before it is absorbed relatively quickly, by both the private and public sectors.
The market in Montreal is expected to hold steady, with no new supply of space coming on market and a drop in the vacancy rate.
Meanwhile, another factor that will drive office vacancy rates upward in some cities is the emergence of underutilized space held by companies, Mr. MacCulloch said.
"While the economy flourished, tenants tended to snap up additional space that became available in their buildings to accommodate future growth," he noted. "However, as the economic conditions continue to deteriorate, companies will look for ways to adjust operating expenses, releasing this underutilized office space back to the market in the form of sublets."
That will at least temporarily boost vacancy rates, he added.
