Brookfield Properties Corp. expects Canada's office market to pick up this year as the economy starts to recover, but executives say that some cities - particularly oil-and-gas centres like Calgary - could face some challenges.
Weak natural gas prices have cast uncertainty over Calgary's local economy, and they've also raised questions about whether Brookfield's occupancy rates could take a hit if energy companies slash their operations to balance their books.
It will put pressure on "occupancy and fundamentals" unless there's an improvement in commodity prices, said Tom Farley, president and chief executive officer of Brookfield's Canadian commercial operations.
Earlier Friday, Brookfield Properties said that its profit tumbled nearly 60 per cent in the fourth quarter, compared to a year earlier when it booked one-time tax gains.
The subsidiary of conglomerate Brookfield Asset Management Inc., said earnings were $181-million (U.S.), or 35 cents per share, for the quarter ended Dec. 31.
Those results were down from $458-million, or $1.16 per share, in the comparable period a year ago, when Brookfield Properties factored in a tax gain from converting some of its U.S. properties into a real estate income trust.
Filtering out the tax gain, the company said it would have reported a loss of $21-million in the year-ago period.
Quarterly revenue increased to $816-million from $715-million.
In Canada, Brookfield is generally seeing some signs of optimism around its office properties, with a occupancy rate of 98.6 per cent, he said.
Canada hasn't been hit as hard as the United States by the recent global economic downturn and fewer business spaces have become vacant.
"We're still below equilibrium levels resulting in the continuation of a landlord market in each of the cities that we operate, with the exception of Calgary," Mr. Farley told analysts in a Friday conference call.
"Given our low rollover rate, long average lease term, and the increase in Toronto leasing activity, we expect to continue to maintain better than market occupancy levels."
Two of the company's key cities, Toronto and Calgary, experienced lower occupancy rates in the quarter partly because of new buildings added to Brookfield's portfolio.
In Calgary, the company reported that market vacancy was 11.6 per cent, primarily because of more sublet spaces. He said that Calgary's occupancy rate will continue to be under pressure over the next three years as the company adds another 4.3 million square feet to its portfolio in the city.
In Toronto, an extra 2.4 million square feet of office space was added to the portfolio, boosting the vacancy rate to 6.6 per cent.
"We've seen a substantial increase in tenant tours and general activity in the last few months," he said.
"In fact, during the fourth quarter, total market leasing activity was 1.4 million square feet, which is almost double the activity from one year ago."
For the full year, profit was $317-million, or 72 cents per share. Those results were down from $700-million, or $1.77 a share, in 2008 when it recognized a one-time gain of $479-million.