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TORONTO—Despite the drop in oil prices in 2015, Calgary was the fifth most active commercial development market in North America last year, reports a new study released by Toronto-based commercial real estate services firm Avison Young.
Toronto was the seventh busiest commercial development market on the continent, the firm reported in its Avison Young’s 2016 Canada, U.S. and U.K. Forecast, released Jan. 14.
Despite a modest decline from year-end 2014, almost 20 million square feet (msf) of office space (54 per cent preleased and representing 3.6 per cent of existing stock) was under construction across Canada at the close of 2015, Avison Young reported in its media statement, with 60 per cent of the total in Toronto and Calgary.
A burgeoning development pipeline, along with varying absorption levels, increased Canada’s overall office vacancy rate 110 basis points (bps) from year-end 2014 to close 2015 at 10.6 per cent. Vacancy rose in 12 of 13 Canadian markets surveyed, with six markets recording rates above the national average. Vacancy is forecast to rise to 12.2 per cent by year-end 2016.
Scarcity of urban land will shift developers’ focus from single-purpose towards mixed-use, transit-oriented projects in 2016, spurring joint ventures, the report predicted, while optimizing and future-proofing premises will remain paramount.
Industrial construction rose in 2015, with more than 19 msf (40 per cent preleased) in projects underway across the country at the close of 2015. This total is up from 16 msf at the end of 2014.
Toronto, Canada’s largest and North America’s third-largest industrial market, remains the biggest Canadian development market with 6.6 msf (34 per cent of the national total) in industrial projects underway, followed by Vancouver (5.6 msf, 29 per cent).
"The end of the commodities super cycle, uneven employment growth, disruptive technologies, e-commerce and workplace strategies — to name a few — are testing Canada’s otherwise stable commercial real estate sector," commented Bill Argeropoulos, principal, practice leader, research (Canada) for Avison Young. "After entering and exiting a technical recession in 2015, Canada’s economy will endure another volatile year in 2016, leading to disparities in regional performance."
Argeropoulos notes in the media statement that a weaker-than-expected economy and an active development pipeline stymied the Canadian office market in 2015 and will do so again in 2016 as the sector undergoes structural changes. Depth of demand will stem from expanding requirements, a growing trend toward co-working spaces enabled by a mobile workforce, a race to attract talented millennials, intensifying urban-suburban competition, and American tenants looking to establish a foothold in Canada, says Avison Young.
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