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.”

SECOND TO ONE

Calgary’s 8th Avenue S.W. second most expensive street for office space in Canada
Toronto’s Bay Street tops in average street rent
By Mario Toneguzzi
Calgary Herald November 28, 2012

CALGARY — Calgary’s 8th Avenue S.W. strip is the second most expensive street in Canada for office space, according to a report by Jones Lang LaSalle.

The company said Toronto’s Bay Street comes in at No. 1 with average rents running at around $68.91 per square foot and the top rent on the street at $82.28 per square foot.

Calgary’s 8th Avenue S.W. follows with average office rents of $55.33 per square foot and the top rent on the street at $76.50 per square foot.

“It is clear from our ranking that companies are keen to pay a premium to be in the most prestigious locations,” said Brett Miller, president of Jones Lang LaSalle Canada. “Our figures also prove that demand is not abating and rents have moved up year-over-year in every city confirming the strength of the Canadian office market.”

Calgary’s 8th Avenue S.W made its debut this year to reach second on the list. Last year, Calgary’s 3rd Avenue S.W. was in fourth place.

This year’s list after 8th Avenue S.W. with their average street rent and top street rent includes: Vancouver’s Burrard Street, $54.75, $65.41; Ottawa’s Albert Street, $53.18, $53.18; Edmonton’s 101st Street NW, $49.40, $55.25; Montreal’s Rene-Levesque Boulevard West, $46.46, $56.19; and Halifax’s Upper Water Street, $35.57, $35.78.

Maggie Schofield, executive director of the Calgary Downtown Association, said the high Calgary rent along 8th Avenue is due to the existence of office skyscrapers Bankers Hall and Eighth Avenue Place.

“We’re certainly not surprised that the rates would be very high. It’s all about location. These are very, very high demand properties and the market is certainly driving it. There’s a great deal of appetite for high level, the top class, real estate in the downtown core from the office perspective,” said Schofield.

“A number of companies are trying to take advantage of the fact that they can now get into some of these newer properties and get contiguous space which has been a real challenge for a lot of companies that are trying to expand. So they’re looking at these opportunities and they’re willing to pay that price to get all their people in the same office building rather than being scattered in three or four or five separate towers depending on which company you are.”

Other advantages include the number of amenities along 8th Avenue, particularly in retail, great access to transit and available parking spaces in newer buildings, she said.

Commercial real estate firm CBRE said the vacancy rate in the downtown Calgary office market for Class AA space was 0.5 per cent in the third quarter of this year. It has dipped after being 10.6 per cent at the end of 2009.

According to CBRE, the average net asking rent for Calgary downtown Class AA office space was $23.50 per square foot in the second quarter of 2000. It peaked at $54.48 in the second and third quarters of 2008 then dipped to $33.78 in the first quarter of 2010.

In the third quarter of this year, the average net asking rent for Calgary downtown Class AA office space was $42.00.

The Jones Lang LaSalle report indicated that the differences between the average market rents and the average street rents this year were 133 per cent for Bay Street and 63 per cent for 8th Avenue S.W.

In 2011, it said Bay Street had an average street rent of $52.09 with a top street rent of $78.19. For 8th Avenue last year it was $49.94 for the average street rent and $54.19 for the top street rent.

Photo By: Tony Tran