Toronto’s downtown office market is the only Canadian entry in CBRE’s Global 50 Index of most expensive space. At $62.47 ($61.40 US) per square foot, Toronto’s 50th-place rates equate to approximately 26 per cent of occupancy costs in top-ranked central Hong Kong, where space averages $235.23 US per square foot.
CBRE’s June 2013 summary of occupancy costs in 127 markets reports that rates have risen in 71 markets since 2012, declined in 34 and remained stable in 22. Calgary is prominent among the increasingly expensive urban centres, recording a 12 per cent cost jump downtown and nine per cent in the suburbs, to place 8th and 11th on the list of markets with greatest annual increases.
“Energy-focused markets such as Denver, Oslo (Norway), Calgary (downtown and suburban) and Houston (downtown and suburban), as well as high-tech markets such as San Francisco (downtown), Boston (downtown and suburban) and Seattle (downtown and Bellevue, Wash., central business district) saw large year-over-year increases in the first quarter of 2013,” the report states. “There is limited new supply in these markets as lenders generally require a high level of pre-leasing before they will agree to finance new construction projects.”
This analysis complements observations in the recently released IPD Global Cities Performance Commentary, which points to the more than 1,000 basis points gap in total returns between Calgary’s office sector and retail – its lowest-performing sector with total returns of 13.1 per cent.
“The office sector was a drag on performance in many cities in 2012, but it gave a boost to the top three city markets – Calgary, San Francisco and Houston – clearly differentiating all property performance in these cities from their peers,” says the IPD report.
As CBRE reports, downtown Calgary’s average total occupancy cost of $62.02 per square foot in the first quarter of 2013 is just slightly below the average for Toronto’s core but exceeds Vancouver’s downtown average of $57.58 per square foot and downtown Montreal’s $41.61 per square foot average. Calgary offers up the costliest suburban market of the four cities at $39.05 per square foot, followed by Vancouver at $33.72 per square foot, Toronto at $32.24 per square foot and Montreal at $27.87 per square foot.
Meanwhile, Montreal, Calgary and Toronto had the lowest vacancy rates among 87 Canadian and U.S. cities in Colliers International’s Global Office Report for mid-year 2013. Rates of 5.7 per cent, 5.9 per cent and six per cent put the three Canadian cities in the mid-range of the top three cities from each of the Asia Pacific, EMEA (European, Middle East and Africa), Latin American and North American markets, in which seven of the 12 had vacancy rates between five and six per cent. The top two cities, Rio de Janeiro, Brazil, at 2.2 per cent and Beijing at 3.5 per cent, boasted considerably tighter office markets than the 10th to 12th placed cities, Sydney, Australia, at 7.2 per cent, Tokyo at 8.5 per cent and Mexico City at 9.4 per cent.
“Across the 87 U.S. and Canadian markets, strength in the ICEE (intellectual capital, energy and education) markets continued to drive absorption through the first quarter of 2013, totalling 3.9 million square feet compared with 8,000 square feet of negative absorption in FIRE (finance, insurance and real estate) markets,” reports Colliers.
Vancouver had North America’s lowest average cap rate, at 4.75 per cent, for offices in the central business district, followed by New York and San Francisco, which were both at five per cent. Vancouver’s 5.7 per cent average cap rate for industrial space is also the lowest in the North American market, followed by San Jose/Silicon Valley, Calif., at six per cent and Orange County, Calif., at 6.25 per cent.
“Cap rates continue to compress and warehouse prices have risen,” states Colliers’ report. “As institutional investors become anxious about the multi-family market, demand for modern warehouse properties in core port and inland distribution markets grows.”
A recent Cushman & Wakefield research report, The Changing World of Trade, identifies the Port of Vancouver as North America’s fifth busiest and the only Canadian port on the top 10 list. Vancouver and the Greater Toronto Area (GTA) are also grouped with North America’s most dynamic regional markets along with Miami and Chicago.
British Columbia’s Prince Rupert Port receives special mention for “steadily eating into the market share of the ports of Los Angeles and Long Beach, Calif.” About two-thirds of container traffic moving through the port goes to the U.S. Midwest and mid-south, which prior to the 2007 launch of Prince Rupert’s Fairview Container Terminal had been primarily served through ports in California.
“Prince Rupert’s impact has been greatest in Chicago, Memphis (Tenn.) and Toronto, all of which are well connected to the Canadian rail networks and have long track records for receiving such freight,” reports Cushman & Wakefield.
Winnipeg is likewise tagged as a potential rising inland port due to the 20,000-acre CentrePort Canada facility with multi-modal connections to key east-west and north-south trade routes.
“As a result, several privately owned industrial parks are being developed at the location,” the report notes. “Other markets widely recognized as full-fledged inland ports are Houston, St. Louis, Memphis (Tenn.), Inland Empire (Calif.), Charlotte (N.C.), Prince George (B.C.), Edmonton, Regina, Calgary (under development), Montreal and Quebec City.”
Barbara Carss is editor-in-chief of Canadian Property Management and Building Strategies & Sustainability magazines.
