Canadian office and industrial markets are beginning to feel the full impact of the recession, with the first quarter of this year showing rising commercial vacancy rates, and a sharp increase in sublet space in some major Canadian cities, according to a recent report by real estate firm Colliers International.
TORONTO
Canadian office and industrial markets are beginning to feel the full impact of the recession, with the first quarter of this year showing rising commercial vacancy rates, and a sharp increase in sublet space in some major Canadian cities, according to a recent report by real estate firm Colliers International.
Although Canada’s real estate market is still relatively stable, market analysis conducted by Colliers shows the impact that recent Canadian job losses and stalled economic growth is now having on the commercial real estate sector.
Colliers says companies are shedding leased space earmarked for future growth as they reorganize business operations to endure the current economic climate.
The report reveals that sublet space — one of the leading indicators of the health of the office market — has jumped during the first quarter and now accounts for 19.5 percent of total vacant office space across the country.
The flipside of this trend is the opportunities presented to tenants by way of potentially discounted rents for built-out premises on short notice. The average national vacancy rate for downtown and suburban markets rose to 5.9 percent in the first quarter, up from 5.1 percent in the last quarter of 2008.
Average downtown gross rents have fallen to $47 per sq. ft, from a high of $50.40 in Q4 2008, with average suburban gross rent holding at $31.10 per sq. ft. This dynamic has lead to the introduction of increased incentives in many areas, as landlords compete for quality tenants.
“These figure are by no means bleak,” says Ian MacCulloch, Canadian vice-president of research with Colliers International.
“We entered the current recession with historically low vacancy rates and significant new supply coming to market in only two cities. Although demand for office space is likely to remain soft across most regions throughout 2009, we expect to see a healthy bounce once corporate Canada regains confidence. The rise in sublet space seen during Q1 is in line with expectations, and by no means suggests an impending commercial real estate crisis.”
The industrial markets also saw a rise in availability during the first quarter, as demand softened and new supply was delivered but was slow to be absorbed.
Rental rates have remained stable during this period, driven predominately by western markets where a downturn has been slower to take hold. Canada’s eastern cities, Toronto and Montreal — that are more heavily weighted to distribution, warehousing and the auto industry — have borne the brunt of the industrial market downturn to date, and are expected to return to a more solid position in the medium term, which by current forecasts points toward 2010 and 2011.
DCN News Services
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