The skyline of downtown Calgary.Chris Bolin Photography Inc./The Globe and Mail
Canada's office space vacancy improved in the second quarter, led by a record-setting recovery in Calgary.
CB Richard Ellis said the 8.6 per cent vacancy rate improved from 9.3 per cent in the last quarter, and was at 10.1 per cent a year ago. Tenants leased 3-million square feet of space, compared to 1.2-million square feet a year ago. The report doesn't track rents.
"As a whole, the national trend for the office market is improving fundamentals, however, the performance of Calgary's office market is absolutely staggering," CBRE said in a statement. "Since peaking in the second quarter of 2010, Calgary's vacancy rate has recovered at its fastest pace ever, down 630 basis points year-over-year to 9.4 per cent."
The company said leasing activity has spurred construction, with new projects expected in Montreal, Toronto, Calgary and Vancouver.
The rate improved in the industrial sector as well, to 7 per cent from 7.3 per cent. Space under construction rose to 7.5 million square feet from 5.1 million square feet compared last year.
From the report:
Vancouver: The Metro office vacancy rate decreased from 10.1 per cent in the second quarter of 2010 to 8.7 per cent in 2011. "Downtown office vacancy is the lowest in the country, at 4.3 per cent, and although a new development cycle is beginning with three new office towers expected to break ground in the downtown market shortly, these towers will take several years to build, therefore the market will continue to tighten with no relief insight until 2014 at earliest. Although suburban office vacancy is 13.4 per cent it is down from 15.1 per cent at this time last year, and the market continues to experience increased activity from both new entrants into the market and existing corporate expansions, which will continue as tenant demand spills over from the downtown market."
Calgary: Vacancy fell below the 10 per cent mark for the first time since the first quarter of 2009, reaching 9.4 per cent. "Vacancy is down an incredible 630 basis points from its peak of 15.7 per cent one year ago. This is the fastest the Calgary office market vacancy rate has ever rebounded. Although it is comparable to mid 1996 when the market rebounded by 620 basis points in a year, the rapid reduction in vacancy this time around is even more astounding when you compare it to the large amount of new supply that has been added to the market over the past few years. Most of the leasing activity came from expansion and renewed optimism in the oil sector, with spinoff growth in service companies and other industries serving this sector. The Calgary office market "still has to work through a significant amount of new supply, including The Bow. However, we anticipate that equilibrium will return to the market."
Edmonton: Overall office vacancy rate dropped slightly to 10.3 per cent this quarter, from 10.5 per cent at this time last year and 10.7 per cent in the first quarter of 2011. The downtown vacancy rate decreased from 8.6 per cent in the second quarter of 2010 to 8.4 per cent this quarter, however, this was not before jumping to 8.8 per cent in the first quarter of 2011. "The Edmonton economy, and Alberta as a whole, continue to show extremely positive signs of growth. The industrial market continues to experience strong leasing activity as a result of the energy sector, with over 2.0 million SF of positive absorption over the last three quarters."
Toronto: Overall office vacancy rate was 8.2 per cent in the second quarter, down significantly from 9.6 per cent at this time last year. The downtown vacancy rate fell an additional 40 basis points this quarter, for a total of 100 basis points year-to-date, and now sits at 5.9 per cent, below 6.0 per cent for the first time since the first quarter of 2009. "There remains a significant amount of available space that has been removed from the market for renovations and retrofit, and this space will return to the market in late 2011 and early 2012. Several new projects are in the pre-leasing stages, looking for anchor tenants before breaking ground, and the fundamentals in the downtown market are looking favourable to kick off new development in the coming year 12 months."
Ottawa: Although the overall office vacancy rate is up from 5.3 per cent at this time last year to 6.8 per cent in the second quarter, it was virtually unchanged from 6.7 per cent last quarter. "The downtown office vacancy rate surprisingly dropped from 5.0 per cent last quarter to 4.4 per cent, however, there was limited leasing activity in the downtown market. The rise in suburban vacancy, from 8.1 per cent last quarter to 8.7 per cent, was counter intuitive because there has been good leasing velocity, particularly in Kanata. The increase in suburban vacancy is primarily a structural adjustment because many companies were unable to make needed adjustments to their leases during the recession, and as a result the increase in vacancy this quarter is the tail end of this adjustment process."
Montreal: Office vacancy rate declined from 10.8 per cent in the second quarter of 2010 to 8.9 per cent this quarter. Montreal's downtown office market continues to perform well, with vacancy down from 9.1 per cent at this time last year to 7.5 per cent this quarter. "The downtown Montreal office market continues to tighten, and there are approximately ten availabilities of Class A space greater than 30,000 SF in the downtown core this quarter. As a result, the first new downtown office tower since 2002 - a ten storey, 230,000 SF building - has commenced construction. However, it will not be completed until early 2014 so the market will continue to tighten until then."
Halifax: Overall office vacancy rate was 8.4 per cent in the second quarter, down from 9.0 per cent in the same period of 2010. "The Halifax office market continues to experience stable leasing activity, however, it is much stronger in the suburban market than in the Central Business District."