Halifax continues to suffer the highest office vacancy rate of any major Canadian market east of Alberta. However, a recent comprehensive survey of more than 20 million square feet of commercial space across a wide sweep of the regional municipality finds some relatively strong pockets and at least a modest dip from last year’s levels almost everywhere.
The Atlantic Canada real estate advisory firm, Turner Drake & Partners, reports an overall office vacancy rate of 15.25 per cent, representing a drop of more than 170 basis points since June 2017. New occupants moved into about 540,000 square feet of previously empty space over the past 12 months. In the same period, nearly 400,000 square feet of new space was added to the region’s office inventory, to exceed 12.1 million square feet.
At the best performing end of the spectrum, vacancy fell nearly 180 basis points to edge below 8 per cent in the suburban Halifax market. This node offers about 2.3 million square feet of typically newer office stock.
“A decade ago, the vast majority of new office construction was in the suburban business parks, driven by the lower costs of land and construction and the ease with which planning permission could be obtained. This head start on capturing tenants looking for modern space has resulted in the lowest vacancy rates of any of the Halifax submarkets,” the Turner Drake analysis explains.
Dartmouth’s central business district sits at the other pole with a vacancy rate nudging above 18.5 per cent. Even so, that’s in a submarket with just 330,000 square feet of office space.
The Halifax central business district accounts for more than 5 million square feet or about 42 per cent of the surveyed office inventory. Turner Drake analysts peg the vacancy rate at 18.35 per cent, down from 19.5 per cent one year earlier.
That’s a somewhat more optimistic picture than CBRE’s newly released numbers for the second quarter of 2018, which indicate 19.9 per cent of downtown office space is vacant — up from 19.3 per cent at the end of March. The Class A vacancy rate is higher still, at 22.1 per cent, in large part due to the arrival of new space in recent years.
An average net rent of $19.31 per square foot is lower than the $21.35 per square foot average for downtown Class A space across the 10 Canadian markets CBRE surveys, but is greater than the average rent Class A commands in Calgary, Winnipeg, Waterloo or London, Ontario.
“In 2013, Class A space represented 27.9 per cent of the total gross leasable area (GLA) in the office market, while Class B accounted for 64 per cent and Class C just 8.1 per cent. In 2018, Class A makes up 36.5 per cent of the total GLA, while Class B comprises 57.3 per cent and Class C, 6.2 per cent,” Turner Drake reports.
CBRE reports approximately 170,000 square feet of office space is currently under construction, with 120,000 square feet of that in a new downtown mixed-use project, but it will not be completed until 2019. “Larger scale projects are scheduled to come on stream in the 2 to 3-year projection period, but, in the meantime the steady short-term inventory will give demand a chance to gain some ground versus supply,” the Turner Drake analysis concludes.
The Halifax industrial market is already more upbeat. Turner Drake looks more narrowly at 8 million square feet of rentable warehouse space to calculate an 11.5 per cent vacancy rate and average rents of $7.81 per square foot, while CBRE’s averages arise from 12.4 million square feet of industrial space.
Those numbers show a 1 per cent drop in the vacancy rate, taking it down to 8.7 per cent, since March of this year. Average net rent rose in the same period, from $7.83 per square foot to $7.91 per square foot.
Dartmouth, in particular, presents a happy contrast to sluggish office dynamics. It was the best performing submarket, tallying more than 182,000 square feet of industrial absorption in the second quarter. In addition, tenants have pre-leased 80 per cent of the 82,500-square-foot facility now under construction, while the newly opened Centre for Ocean Ventures & Entrepreneurship (COVE) is key to envisioned high-tech research, development, innovation and commercialization in the marine sector.