About 6.3 million square feet of new office space is due for completion in major Canadian cities in 2020 with much of it coming onto the market in Toronto, Vancouver and Montreal. However, Avison Young’s analysts foresee relatively static vacancy and rental rates over the coming year. A newly released forecast suggests the national office vacancy rate will continue to hover just below 10 per cent, while the Canada-wide average rent, which sat at $32.36 per square foot at the end of 2019, could rise slightly.
Those national averages mask market-to-market variation with Vancouver and Toronto enjoying landlords’ markets as Calgary and Halifax continuing to struggle. The latter are among the small minority of surveyed markets where office vacancies are expected to rise in 2020.
In contrast, Vancouver posted the Canada-low vacancy rate of 3.4 per cent at year-end, along with the highest average gross asking rental rate of $52.75 per square foot. Toronto followed with a vacancy rate of 5.3 per cent and average asking rents of $43.02 per square foot.
“The growing technology sector is carving out a larger slice of the leasing pie and, in many cases, driving innovation in traditional businesses,” Avison Young’s newly released national forecast observes. “Vancouver, Toronto, Montreal and Ottawa are becoming prominent global technology hubs, pushing occupancy levels to near-record highs.”
Industrial market dynamics are expected to be similarly consistent and optimistic after 2019 ended with a record-low national vacancy rate of 2.3 per cent. That record is projected to slip incrementally lower over the course of 2020 as the pace of newly completed space drops somewhat from 22 million square feet added to the market in 2019.
“Scarcity of product is evident in single-digit vacancy rates recorded across 10 of the 11 markets surveyed. Closing out 2019, Toronto (0.7 per cent) and Vancouver (1.6 per cent) were among the tightest industrial markets in North America and expected to hold the position in 2020,” the 2020 forecast states. “Given the supply-demand imbalance, the consensus is that rents will rise further.”
Across the surveyed markets, Vancouver posted the highest average industrial rents, at $17.32 per square foot, last year, but four other market also boasted averages above the national average of $13.61 per square foot. For 2020, vacancies are expected to nudge up marginally in Edmonton and Regina, stay flat in Montreal and drop in all other major markets. In what’s typified as a “supply-starved” scenario, about 13 million square feet of the anticipated 19.4 million square feet of new national inventory is set for the Greater Toronto Area.
“Canada’s industrial sector will continue to thrive, benefiting from high occupancy levels and strong leasing rental rate spreads, especially on renewals, in the major markets of Vancouver, Toronto and Montreal, as well as Calgary, which serves as a distribution hub for much of western Canada,” Avison Young projects.
With Calgary’s office vacancy rate projected to surpass 24 per cent over the coming year, that growing profile as a distribution hub offers some counterbalancing positive momentum. Avison Young predicts the industrial vacancy rate will drop to about 6 per cent in 2020. After adding six million square feet of new industrial inventory over the past two years, none is slated to come onto the market in Calgary this year.