There is growing concern among industry members about office vacancy rates in Canada’s downtown commercial property markets.
According to New Cycle New Story, a report presented by Cushman & Wakefield at its annual Office Market Outlook event, new development activity and slowing demand has industry members bracing for increased vacancy rates.
Downtown Toronto has seen significant office development since 2009, with more than 10 million square feet projected to go up by 2017. Calgary currently has 4.8 million square feet under construction, and there is 1.8 million square feet in progress in Vancouver.
Montreal is also seeing growth, with a 730,000-square-foot office tower underway. While Montreal waits on the first privately funded building in over 15 years to be completed, Vancouver is seeing its most active development cycle in more than 20 years.
In downtown Toronto, there are 5.1 million square feet under development, 1.6 million feet of which will hit the market in late 2014. This will drive the vacancy rate up from 4.7 per cent in the third quarter of 2013 to seven per cent by the end of next year.
As a result of weakening global economic conditions, from the fourth quarter to 2012 to the third quarter of 2013, absorption for national central areas was on average, negative 400,000 square feet per quarter. Comparatively, between the end of 2009 and the third quarter of 2012, national markets experienced 1.2 million square feet per quarter of positive demand.
“There’s no question that the development market is on fire, especially in downtown Toronto,” says Scott Chandler, president and CEO of Cushman & Wakefield Canada. “However, the office leasing market has softened since the current development cycle started, and we see 2014 being a challenging year for some landlords, primarily of un-renovated older stock. Tenants on the other hand will have a wider choice of options.”
It is expected that a sustained U.S. recovery will lead to new office growth in both Canadian suburban and downtown markets. Chandler predicts improving market conditions should increase demand for Canadian office markets.
