It was a good year to be a commercial property owner or manager in New Brunswick during 2019, as both office and industrial vacancy rates in the province’s three largest markets declined. The trend is expected to continue through 2020, according to Turner Drake & Partners Ltd.
Turner Drake conducted surveys to collect rental, operating expense and vacancy data covering 7.92 million square feet of space in 164 office buildings with rentable areas of 5,000-or-more square feet in Greater Moncton, Greater Fredericton and Greater Saint John. It did the same thing with 4.19 million square feet of space in 99 warehouses with rentable areas of 5,000-or-more square feet or greater.
“Year-over-year changes over the past two years indicate health in these three markets, with further stability expected in the year ahead,” Alexandra Baird Allen, manager of Turner Drake’s economic intelligence unit, told RENX.
Greater Moncton office
There were 71 office buildings with a combined gross leasable area of 3.3 million square feet surveyed in Greater Moncton.
The office vacancy rate dropped from 8.02 per cent in 2018 to 7.93 per cent last year as the total amount of rentable space increased 2.48 per cent. The increase is due in part to newly converted office space coming into the market.
Vacancy rates and rents per square foot were: 3.57 per cent and $14.04 for class-A; 12.25 per cent and $12.22 for class-B; and 7.55 per cent and $11.92 for class-C.
While demand is expected to rise by 1.3 per cent in2020, and a minor rent increase is forecast, the vacancy rate is expected to rise to 9.49 per cent this year due to additional new supply being added to the market.
Heritage Developments is renovating the former Moncton High School. It will include a community arts centre and close to 100,000 square feet of office space.
“Moncton/Dieppe has a bilingual workforce, so one of the major players there is the call centre industry,” said Baird Allen.
Greater Fredericton office
Fifty office buildings with a combined gross leasable area of 2.11 million square feet were surveyed in Greater Fredericton, which now has the lowest office vacancy rate in Atlantic Canada. It decreased slightly from 6.77 per cent to 6.7 per cent as the total amount of rentable space dropped 0.89 per cent.
Vacancy rates and rents per square foot were: 4.42 per cent and $15.27 for class-A; 9.16 per cent and $13.24 for class-B; and 5.8 per cent and $13.27 for class-C.
While demand is expected to rise slightly,a significant amount of additional supply is expected to enter the market in 2020. Turner Drake is anticipating a 9.8 per cent vacancy rate this year.
A new cyber-secure building is under construction in Knowledge Park. Baird Allen said it will add 135,000 square feet and be built to be “disaster-resilient,” including a perimeter wall to prevent vehicles from getting close.
Waverley Developments LP is building a 75,000-square-foot mixed-use building on Regent Street that will primarily include office space as well as some retail. It’s not expected to come on stream until 2021.
A small increase in lease rates is forecast for this year.
While all three New Brunswick markets have typical offices for banks, lawyers and accountants, Baird Allen said: “Fredericton is largely characterized by its position as the capital city, with many government departments centred there. It has also focused on the IT industry over the past couple of decades, namely in the Knowledge Park development.”
Greater Saint John office
There were 43 office buildings with a combined gross leasable area of 2.51 million square feet surveyed in Greater Saint John.
The overall office vacancy rate decreased from 19.1 per cent in 2018 to 14.07 last year as the total amount of rentable space increased 0.3 per cent.
Vacancy rates and rents per square foot were: 16.97 per cent and $15.17 for class-A; 14.1 per cent and $12.76 for class-B; and 9.98 per cent and $10.66 for class-C. Class-C vacancies fell from 24.45 per cent and class-B vacancies fell from 18.32 per cent, while class-A vacancies rose slightly from 16.46 per cent.
“The office market in Saint John is in some ways the victim of the city’s past economic success, which saw a number of urban shopping centres constructed in the 1960s and 1970s,” Baird Allen explained. “When demand for retail space shifted away from these malls, they were converted to office space, so the city has a disproportionate amount of class-C office space for a city of its size.
“This oversupply is a contributing factor to the high vacancy rate. Other factors include the nature of the economy in Saint John, which has a strong industrial focus, as well as broader trends in how office space is utilized — going from individual offices to cubicles, and now to flex space and bullpen environments where employees work in communal spaces that require fewer square feet of office space per person.”
A 1.3 per cent increase in demand is expected this year and, since no major additions to rental supply are anticipated, the office vacancy rate is expected to fall to 12.9 per cent. Minor rent increases are forecast.
Baird Allen said companies owned by the Irving family are key players in the local economy, albeit primarily in owner-occupied space.
Greater Moncton warehouse
There were 72 warehouse buildings with a combined gross leasable area of 3.29 million square feet surveyed in Greater Moncton. It’s by far the largest warehouse market in New Brunswick.
The city’s location means it is well-positioned as a distribution centre for the rest of the province as well as Nova Scotia and Prince Edward Island.
“Each of the cities of Moncton and Dieppe have actively pursued industrial development and have proven successful in this regard over the past few decades,” said Baird Allen.
The overall vacancy rate dropped from 14.82 per cent in 2018 to 10.68 per cent in 2019, even as the total amount of rentable space increased by 2.96 per cent.
“The Moncton Industrial Park is the largest supplier of rental warehouse space in the Greater Moncton Area,” said Baird Allen. “Vacancy there fell from 20.32 per cent in 2018 to 14.5 per cent in 2019.
“The Central Moncton area, which is relatively small in terms of the overall market, saw vacancy drop from 7.03 per cent to just 1.12 per cent, while the Caledonia Industrial Park decreased from 13.39 per cent to 12.08 per cent and the Dieppe Industrial Park dipped from an already low 4.54 per cent to 3.57 per cent. Overall demand increases drove the vacancy decline.”
The respective rents per square foot were: $7.97 for Central Moncton; $6.62 for Moncton Industrial Park; seven dollars for Dieppe Industrial Park; and $6.64 for Caledonia Industrial Park. A minor increase in rents is expected this year.
Demand is expected to increase by 0.6 per cent and Turner Drake anticipates the vacancy rate will fall slightly to 10.15 per cent.
Greater Fredericton warehouse
Fredericton’s industrial market is comprised mainly of locally oriented businesses which service the city, rather than distribution warehousing. There were 11 warehouse buildings with a combined gross leasable area of 341,943 square feet surveyed in Greater Fredericton.
The overall vacancy rate dropped from 13.84 per cent in 2018 to 8.87 per cent last year. The total amount of space remained unchanged.
Vacancy rates and rents per square foot were: 1.77 per cent and $7.71 in Central Fredericton; and 13.53 per cent and $6.57 in Fredericton Industrial Park. Most of the industrial space in the market is in Fredericton Industrial Park, which had a 20.99 per cent vacancy rate in 2018.
Demand is expected to increase by 2.2 per cent this year and, with no anticipated new supply coming to market, the vacancy rate is expected to drop to 6.85 per cent.
“Warehouse space can be built relatively quickly, so many developers wait until they have a tenant and custom-build for them,” said Baird Allen. “This may play a role, in each of reality and in what we know about, since it may not be advertised or announced far in advance.
“Another factor can be the option for owner-occupied space, which doesn’t show up in rental market statistics.”
A small increase in rents is expected this year.
Saint John warehouse
Saint John has a port, which influences the industrial sector to a certain degree. Overall, however, the city has the expected mix of typical industrial businesses serving the local market.
There were 16 warehouse buildings with a combined gross leasable area of 551,430 square feet surveyed in Greater Saint John.
The overall vacancy rate decreased from 12 per cent in 2018 to 9.92 per cent in 2019 as the total amount of rentable warehouse space increased by 5.92 per cent.
Vacancy rates and rents per square foot were: 8.02 per cent and $6.66 in Saint John Industrial Park; and 14.51 per cent and $11.12 in the rest of Greater Saint John.
Demand is expected to increase by 1.9 per cent this year and, with no anticipated new supply coming to market, the vacancy rate is expected to drop to 8.23 per cent. Minor upward momentum is expected in rents.