Despite softening demand in many major cities, large amounts of office space are continuing to enter the market.
Among the Canadian cities expected to experience more challenging office leasing conditions are Vancouver, Toronto, Ottawa, Montreal and Edmonton. Most of these cities will see millions of square feet of office space built up over the next few years.
Cushman & Wakefield Canadian Office Outlook 2014 says: “From Vancouver to St. John’s, Canadian central markets are experiencing the most robust development cycle in 20 years.”
It depends on the city
At the recent Toronto Real Estate Forum, industry players were bullish on the new development, but Jones Lang LaSalle’s Real Estate Services Canada president, Brett Miller, questioned their enthusiasm and opined a tenant’s market might be in the offing.
Is the optimism unwarranted? It may depend on in which city the offices are being built, according to Cushman & Wakefield’s new report.
Vacancy rates will continue to rise in many of the cities: Montreal will see a vacancy rate of 10.5 per cent by the end of 2015; Edmonton’s vacancy rate will peak to 8.7 per cent in 2014 before falling back to 6.3 per cent by the end of 2015; and Vancouver’s vacancy rate is expected to rise into the low double digits by the same time period.
In Toronto, the sublet market has a seen a significant rise because of slowing business growth and a build-up of excess space, according to Cushman & Wakefield, which says “These softer demand conditions, and the resulting neutral or negative absorption, will continue through most of 2014.”
In terms of office development, Vancouver will see 2.4 million square feet built, with 60 per cent of the space pre-leased; Calgary’s downtown and Beltline are adding 5.2 million sq. ft. between now and 2018; and Ottawa will add 840,000 sq. ft. of space.
Montreal has two office towers going up by 2015, one of which is the first privately funded office building to rise in 15 years. And nearly $1.4 billion is being invested in Winnipeg’s sports, hospitality and entertainment district.
Sustained growth in St. John’s
In St. John’s, where an energy boom is underway, more space is good news all around.
“St. John’s is experiencing a level of development not seen in 25 years,” said Susan Morrison, manager for Newfoundland & Labrador at Cushman & Wakefield Atlantic. “This was triggered by a serious shortage of space, especially in the face of strong, project-related demand.
“Even so, the bulk of this new space is pre-leased and very little space will be freed up in the long term.”
Vacancy rates are expected to remain low in the Newfoundland & Labrador capital, where 310,000 sq. ft. is expected to built in its strongest cycle since 1986. By the end of 2015, the vacancy rate is anticipated to be 2.1 per cent after rising to a peak of 6.7 per cent with the new developments.
In contrast, Moncton is expected to see its vacancy rate rise to 11.9 per cent in 2014.