Vacancy and rent statistics for the fourth quarter of 2015 reveal divergent trends in Canada’s major office and industrial markets, with Calgary experiencing the steepest slide over the course of last year. Most notably, Colliers Canada charts a nearly 10 per cent jump in the city’s downtown office vacancy rate since December 2014, while average net rents fell 26.7 per cent, to $22 per square foot, during the same period.
Calgary’s downtown office vacancy rate, at 18.1 per cent, now surpasses the suburban threshold of 16 per cent. Industrial vacancies also increased from 3.8 to 6 per cent during 2015 as more than 2 million square feet of speculative supply came onto the market in the fourth quarter alone. However, average net rents held steady at $9.75 per square foot.
Looking east, Toronto is on an upswing. Downtown office vacancies dropped below 3 per cent as average net rents nudged up incrementally over the year. The suburbs exhibited less movement with the office vacancy rate stalled slightly above 10 per cent and a fractional drop in average net rents from $15.13 to $15 per square foot since December 2014. Meanwhile, the industrial vacancy rate decreased from 3.7 to 3.1 per cent, while average net rents rose 1.1 per cent, from $5.35 to $5.41 per square foot.
Differing urban outlooks are attributable to local economic drivers. A stable business services sector and positive, if not meteoric, economic growth underpinned the absorption of 1.1 million square of new office space delivered to the Greater Toronto Area in 2015. In contrast, oil prices below $35 a barrel create little cause for short-term optimism in Calgary.
“Layoffs are expected to continue this year, impacting the downtown market where a large majority of energy sector head offices are located. The suburban office market is in a better position to weather the storm and continues to see a greater volume of deal activity due to a more diversified tenant base,” the Colliers Q4 overview expounds. “Looking forward, the Alberta government plans to spend $34 billion on infrastructure building and job creation, which should help boost economic activity, though the province has a long recovery ahead.”
Nationally, British Columbia was the leader in GDP growth last year — status it is projected to retain in 2016 with positive implications for the Vancouver’s office and industrial markets. Last year’s rise in downtown office vacancies can be tied to an influx of newly completed supply, but healthy increases in average net rents — 6.7 per cent downtown; 4.4 per cent in the suburbs — tell a more complete story.
Colliers analysts also see a silver lining for industrial properties in Canada’s weak dollar, calling it “a key driver of space demand from U.S. entrants to the market, a major one being the film industry, which has increased competition within an already tight leasing market.” Vancouver’s industrial vacancy rate dropped from 4.1 per cent in December 2014 to 2.4 per cent by the end of 2015, while average rents increased from $8.08 to $8.13 per square foot.