Friday, September 26, 2014

YYC & YYZ OUTPERFORM


Calgary and Toronto office markets outperform
Calgary has nearly 6 million square feet under construction
BY MARIO TONEGUZZI
CALGARY HERALD SEPTEMBER 25, 2014

CALGARY - Lacklustre job creation continues to impact demand for commercial real estate in Canada, but office markets in Calgary and Toronto are outperforming the rest of the country, according to the CBRE Limited’s National Office and Industrial Third Quarter 2014 Statistical Summary released on Thursday.

The report said tepid job growth has undermined office leasing activity in Canada, but has been unable to stem an historic industrial construction boom.

“The Canadian economy may not be firing on all cylinders, but the Toronto and Calgary office markets turned out quite a performance last quarter,” said John O’Bryan, chairman of CBRE. “It was a bit of a have or have not summer. The standout office markets were exactly that, while other areas were fairly quiet. One assumes that strong office leasing activity in core markets will translate into more widespread office demand in the year ahead.”

The national office vacancy rate dropped for the first time in two years, retreating 10 basis points to 10.3 per cent in the third quarter. Office vacancy had been increasing at a slower pace in recent quarters. Demand for downtown office space in Toronto and Calgary tipped the scale and resulted in a long awaited drop in vacancy, said the report.

Calgary’s overall office vacancy rate of 10.1 per cent fell from 10.6 per cent in the second quarter while in Toronto it dropped from 9.6 per cent to 9.2 per cent. Calgary’s downtown market saw vacancy drop to 9.1 per cent from 10 per cent and Toronto’s downtown market dipped to 5.3 per cent from 6.1 per cent.

In the third quarter, Calgary’s office market had 511,021 square feet of positive absorption and Toronto’s was 712,564 square feet.

Office space currently under construction is 5.6 million square feet in Calgary and 7.1 million square feet in Toronto. Nationally, there is 21.7 million square feet of office space under construction.

Greg Kwong, executive vice-president and regional managing director with CBRE in Calgary, said the drop in vacancy in Calgary is a positive sign but on the negative side the amount of sublet space in the downtown as a percentage of the overall vacancy is at a fairly high level.

For example, in the downtown that percentage was 41.6 per cent in the third quarter, up slightly from 40.4 per cent in the second quarter.

“Any time it’s over 35 per cent of the overall vacancy that means there’s a lot of companies mostly oil and gas that are giving up space. If that continues, that will create negative pressure on the downtown core,” said Kwong. “But overall there seems to be a good sense of optimism. There are deals happening.”

The CBRE report said the Canadian industrial market continues to be characterized by limited availability as tenants remain hungry for industrial space across the country. Demand outweighs supply in most areas, especially for modern distribution facilities.

The overall industrial availability rate fell 10 basis points quarter-over-quarter to 5.3 per cent. In Calgary, it is 4.5 per cent, down from 4.6 per cent in the previous quarter.

There is 4.4 million square feet of industrial space under construction in Calgary and 19.9 million square feet across the country.

“The industrial market is very solid,” said Kwong. “In every size, category or asset class, there’s leasing activity whereas a year ago that was not the case. There was only hot spots in certain size ranges.”