Performing Better and Recovering Faster: Canada’s Office and Industrial Markets
June 30, 2010
Canada’s major office and industrial real estate markets stood up better than expected during the global recession and continue to recover faster than many markets in the United States and Europe, according to Cushman & Wakefield’s recently-released 2010 Mid-Year Outlook.
Covering 12 major markets across Canada, the report found that even though the global recession took a greater toll in Calgary and some suburban and industrial markets, growth in demand was generally much stronger than expected – an indication of long-term business confidence.
“It’s fair to say all our major markets have had a share of challenges through this economic cycle,” says Pierre Bergevin, President & CEO of Cushman & Wakefield. “This speaks to the ability of our landlords and tenants to make wise, restrained decisions through difficult periods, and also to the inherent and unique strength of the Canadian economy.”
In downtown Toronto, where nearly 4.5 million square feet of new developments were coming forward on the cusp of the global recession, some market watchers believed that the market was entering a long period of double-digit vacancy. However, thanks to the strength of Canada’s world-renowned financial services sector, banks and related service companies exceeded growth expectations.
“This underscores Toronto’s enviable position as Canada’s financial capital,” says Paul Morse, Senior Managing Director Toronto Office Leasing of Cushman & Wakefield. “This speaks to the ability of our landlords and tenants to make wise, restrained decisions through difficult periods, and also to the inherent and unique strength of the Canadian economy.”
Downtown Vancouver also surprised market pundits by withstanding the recession from a demand perspective far better than expected and is already experiencing upward pressure on rental rates. However, suburban markets like Richmond continue to be dragged down by the slow U.S. recovery.
Calgary, with a downtown area expected to expand by about 7.5 million square feet of space by 2012, is feeling the strain of low gas prices, which have put heavy breaks on office using demand. Moderate strength in oil prices has helped mitigate the impact that shale gas technology has had on demand within the office markets. Although vacancy rates in the downtown area continue to rise, optimism remains strong as world economies recover and resource demand picks up.
Montreal experienced two quarters of weak demand when the recession initially hit. The city has been slowly reviving. Vacancy rates for premium space in the central area remain tight at 8.3 per cent. As 2010 progresses, demand is expected to shift into modest positive territory, and tenants will be faced with increasingly fewer options for larger blocks of space. Rental rate stability will characterize the market for some quarters, followed by modest upward pressure into 2011, the report says.
While Edmonton’s office market remains tight, the completion of the EPCOR tower in late 2011 will bring an additional 614,000 square feet to the central business district. This additional space, in combination with weak government demand, will result in continued softening of rental rates in the central area.
Winnipeg is poised for good times thanks to the development of a new airport and inland port, which has attracted interest from companies around the world. Downtown leasing activity has also been strong as businesses move to higher-quality buildings.
Halifax’s downtown market is set for significant development for the first time in decades, and St. John’s is currently experiencing a landlords’ market, putting pressure on tenants to enter into early lease renewals, the report says.
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