There’s “cautious optimism” for continued improvement in the Halifax office market in 2019, while the city’s “pretty healthy” industrial sector has dipped below 10 per cent vacancy.
Those are the observations of Alexandra Baird Allen, the economic intelligence unit senior manager for Turner Drake & Partners Ltd., a Halifax-based real estate consulting firm which recently released a report based on rental, operating expense and vacancy data for 325 office and industrial buildings across the-region.
Halifax’s office vacancy rate dropped to 13.86 per cent in 2018 from 14.98 per cent a year earlier, driven by falling vacancies in six suburban submarkets. That figure is still high, however, especially since the average net rental rate was $14 per square foot — the lowest since 2013. Average rents were down for A-, B- and C-classes of office space.
Baird Allen would like to see a balanced vacancy rate of four to five per cent.
Halifax has had a number of new office buildings come on stream during the past few years. The flow of new completions paused in 2018 and that has allowed demand to somewhat catch up with supply, contributing to the dip in the vacancy rate.
Central business district versus suburbs
The Central Business District (CBD) accounts for 41 per cent of the gross leasable area (GLA) in Halifax’s office market. While demand increased 2.3 per cent year-over-year in the CBD, renovations and the remeasuring of existing stock led to a 2.6 per cent increase in supply, increasing the vacancy rate from 17.2 to 17.4 per cent.
The vacancy rate in the downtown peripheral area — bordered by Inglis, Robie and North streets — rose from 9.6 to 10.2 per cent.
The suburban Halifax submarket, which accounts for 18 per cent of GLA, is the healthiest. The vacancy rate in the west end of the peninsula and mainland Halifax dropped from eight to 5.5 per cent.
Baird Allen said the drop is largely due to the district’s abundant parking, ease of access and proximity to suburban employees.
“The suburban inventory tends to be lower-rise, and there’s an increasing trend that we’re starting to see in Halifax towards campus-style office developments with new construction,” said Baird Allen.
“There are on-site amenities like cafes, restaurants and fitness facilities, whereas in the CBD the inventory is higher-rise — sometimes with amenities on the ground floor, but not always. The incentive to provide on-site amenities is lessened because there’s more in other buildings.”
Different markets, different tenants
While there’s been increased demand from technology companies, Halifax’s CBD office space is dominated by professional and financial services. The suburban tenant base is diverse and the district doesn’t have a dominant business sector.
In Dartmouth, meanwhile, increased demand decreased the vacancy rate from 15.5 to 14.8 per cent in the downtown and from 14.6 to 12.8 per cent in the Burnside/City of Lakes and Dartmouth Crossing submarket. Peripheral Dartmouth saw an almost 20 per cent increase in demand, outpacing a nine per cent increase in supply, to drop the vacancy rate from 22.4 to 14.8 per cent.
Bedford dropped below the 20 per cent vacancy mark for the first time in the past six years, settling at 18.2 per cent, while Sackville dropped to 15.4 per cent from 17.3 per cent a year earlier.
Baird Allen expects Halifax’s overall vacancy rate to be slightly higher due to new supply in 2019. She said a premium paid for new product could increase rents by less than one per cent.
Office developments and redevelopments
Armour Group’s $200-million Queen’s Marque mixed-use development will add 120,000 square feet of office space in the CBD on Halifax’s waterfront when it opens next year. All of the space has been pre-leased.
Armour Group’s Westway Park (formerly known as Eon Square) is a campus-style mixed-use development in Bedford. Upon completion, it will encompass one million square feet and be the largest corporate and lifestyle campus east of Toronto.
The four-storey Westway III office building will be completed soon and comprise more than 54,000 square feet of class-AAA commercial space with an enclosed two-level parkade.
In addition to these new office developments, some class-A space in older buildings in the CBD is also being renovated, including Purdy’s Wharf and Scotia Square. Maritime Centre is upgrading its elevators and has a larger redevelopment plan which includes garage expansion, a new Barrington Street entranceway design and a refreshing of its facade to help reduce the effects of wind on pedestrians.
Halifax industrial market
On the industrial front, the vacancy rate has crept lower during the past couple of years and sat at 9.78 per cent at the end of December.
“Most of the industrial development in Halifax is not built on spec,” said Baird Allen. “Most of it’s built on demand.
“A lot of landlords, management companies and developers of warehouse space will advertise spaces coming, but it’s all pre-leasing and they don’t build until they have a tenant secured.”
The Burnside/City of Lakes and Dartmouth Crossing industrial submarket is by far the largest, with 6.6 million of the Halifax Regional Municipality’s eight million square feet of warehouse space. It has a 9.35 per cent vacancy rate.
Bayers Lake is the second largest industrial submarket with 400,000 square feet. It has a 28.35 per cent vacancy rate, which is up slightly year-over-year, due to the primary industrial demand being based in Burnside and Bayers Lake becoming more focused on retail.
Eastport Properties has an industrial campus on Wilkinson Avenue in Burnside called The Wilkinson Project that’s part of the Zero Carbon Building Pilot Project with the Canada Green Building Council. The development will include four or five multi-tenant warehouses totalling approximately 300,000 square feet upon completion. The first 60,000-square-foot building is already occupied.