Commercial real estate rents have declined across Canada, including Toronto, according to StatCan. (Google Maps image)

Commercial real estate rents across Canada have been on a downward trajectory for the first six months of 2020 as the economy absorbs the impacts of the COVID-19 pandemic, according to data released this morning by Statistics Canada (StatCan).

The data shows rents were down 3.1 per cent in Q2 2020, when compared to Q1 rates. During the first quarter, rents had declined 0.2 per cent over Q4 of 2019 as the first effects of the pandemic were being felt, particularly in the retail sector.

During the second quarter, however, the rent drops were seen in all three major sectors.

“With physical distancing measures in place across much of Canada for most of the spring, commercial rents fell a further 3.1 per cent in the second quarter because of lower rent prices for offices (-3.1 per cent), retail (-3.0 per cent), and industrial buildings and warehouses (-3.2 per cent),” the report states.

On a year-over-year basis, rents dropped by two per cent across Canada.

StatsCan said it has expanded the level of data in the commercial rent report. For the first time, rent indexes for retail, office, industrial buildings and warehouses are available for Montréal, Toronto, Calgary and Vancouver.

Data for this report is not “seasonally adjusted”. Prices collected are average rents measured in price per square foot for a sample of commercial buildings. The indexes track commercial rents at the national level, at the provincial and territorial level, and for selected census metropolitan areas (CMAs).

Toronto office sector bucks Q2 trend

Commercial rents were down in every province and territory in Q2 2020, led by lower prices in Edmonton (-9.6 per cent), Ottawa (-7.6 per cent) and Calgary (-6.7 per cent). Rents were also down in Montréal (-4.8 per cent), Vancouver (-3.3 per cent) and Toronto (-2.7 per cent).

Commercial rents were down for all three building types covered by the survey in Montréal, Calgary and Vancouver in the second quarter. In Toronto, rents declined for retail and for industrial buildings and warehouses, but increased 0.8 per cent for office buildings.

In the second quarter, average rental rates for retail buildings fell the most in Calgary (-13.3 per cent), which has also been impacted by an extended downtown in oil and natural resources. This has only intensified during the pandemic.

The largest rent decline in Montréal was for office buildings (-11.3 per cent), while in Toronto it was for industrial buildings and warehouses (-5.7 per cent).

Year-over-year commercial rents comparison

On a year-over-year basis commercial rents fell two per cent in the second quarter, following a 1.2 per cent increase in the first quarter.

Average rents increased 1.1 per cent year over year in British Columbia but declined in every other province and territory during Q2. The hardest-hit provinces were Alberta (-6.2 per cent), Quebec (-2.1 per cent) and Ontario (-1.7 per cent).

Commercial rents were down year over year in 10 of the 13 CMAs covered by the survey. Québec, Saint John and Charlottetown reported year-over-year rent increases for the buildings surveyed, while Ottawa (-8.9 per cent) and Edmonton (-8.8 per cent) had the largest average rent declines for all building types combined.

Rents were also down year over year in four of the largest CMAs in Canada, led by Calgary (-7.8 per cent) and Montréal (-2.6 per cent). Commercial rents declined by 1.9 per cent in Toronto and edged down 0.4 per cent in Vancouver.

By building type, retail rents dropped the most year over year in Calgary (-14.7 per cent), while Montréal (-10.3 per cent) saw the largest decrease for office building rents. Average rents for industrial buildings and warehouses declined in Toronto (-4.5 per cent) and Calgary (-1.7 per cent), but increased in Montréal (+1.9 per cent) and Vancouver (+1.1 per cent).

StatsCan says due to the deadlines and complexity surrounding the federal government’s Canada Emergency Commercial Rent Assistance for small businesses program, its calculations are based on the reported net effective rent before CECRA funding.

Outlook for commercial rents

As the economy began reopening early in the summer, the decline in commercial rents slowed from a 1.1 per cent monthly decrease in May to a 0.2 per cent decrease in June. However, Stats Can forecasts an uncertain future.

“Nevertheless, the long-term outlook of the commercial real estate market remains in flux in the wake of the pandemic,” the report states. “Many businesses have adapted to employees working from home, and some office building tenants are assessing their future office space needs. This could put further pressure on the new office building lease rates.

“Retail building lessors have also been affected by the loss of rental income since March. Retail building lessors and tenants have also been working together to respond creatively to the sudden expansion of e-commerce during the pandemic, and to the growing demand for industrial and warehouse space going forward.”

r- revised

p – preliminary

(Chart courtesy Statistics Canada)