Canada’s commercial construction boom has filtered down to the existing office market, Jones Lang LaSalle (JLL) reports. In particular, 13 million square feet of new Class A space will cause significant shifts in Toronto, Montreal, Calgary and Vancouver.
“As more and more offices are added to the various markets across Canada, we are going to see significant changes from both tenants and landlords,” says Brett Miller, president of JLL Canada. “With large tenants pre-leasing considerable amounts of space in new buildings, they will be leaving large blocks of space behind, opening the door for new tenants to move in.”
Miller predicts an increase in landlord incentives as property managers try to lure tenants into more mature buildings.
Toronto and Montreal trends
An additional 5 million square feet of office space is slated to open up in Toronto’s downtown core by 2017, boosting the total office supply to approximately 75 million square feet. At least 300,000 square feet of office space will become available once tenants that have pre-leased new developments move into their new premises.
Significant new office construction is also proposed in Montreal, attributed in part to the demand for LEED-certified properties. The JLL report predicts the trend of large tenants moving into smaller offices to consolidate space will drive up vacancy rates until at least 2016. In fact, it says vacancy rates could rise to as high as 12 per cent if one of the major proposed developments manages to attract an anchor tenant and start construction.
Calgary and Vancouver trends
In Calgary, about 75 per cent or nearly 3.7 million square feet of new office space coming onto the market by 2018 has already been leased. Older properties will likely have to be upgraded and repositioned to lure new tenants from medium-sized companies ready to take advantage of the space larger companies are emptying.
Likewise, competition for tenants is expected to gear up in Vancouver, as the market absorbs a 16 per cent increase of newly constructed Class A office space by 2017. Approximately 70 per cent of Class A properties in the city’s downtown core are at least 25 years old,which is expected to spur a reevaluation of rental rates to draw long-term tenants.
