2016 Kicks Off with Some Good, Bad and Ugly for Canada’s Office Market, But Industrial Gathers Momentum

Toronto – April 13, 2016 – The segmentation that occurred in Canada’s commercial real estate market during 2015 has grown more pronounced, as reflected in the results of CBRE Limited’s National Office and Industrial First Quarter 2016 Statistical Summary.​  While the national d​​​​​​​​owntown office vacancy rate saw a small uptick to 10.3% from 10.1% in Q4 2015, drilling down further reveals real disparities in performance across Canada’s major office markets.  In contrast, the industrial markets continue to gather momentum with availability rates declining or remaining stable in eight out of 10 of Canada’s major CRE markets. 

Overall demand for suburban and downtown office space picked up in Q1 2016, posting 491,000 sq. ft. of net absorption nationally, despite almost 2.0 million sq. ft. of new supply delivered in the quarter.  Toronto, Montreal and Vancouver led the charge with 834,000, 454,000 and 148,000 sq. ft. of positive net absorption respectively.  However, the overall picture was dragged down by energy-related companies returning space in Calgary, which saw a total of 1.1 million sq. ft. of negative net absorption in the quarter.

“The wide variance in the performance of Canadian downtown office assets in different geographies almost renders the national vacancy rate redundant.  We saw over 100 basis points decreases in vacancy for Vancouver and Winnipeg, small upticks in Toronto and Edmonton and a 260 basis points increase for Calgary, all in the same quarter.  In short, it was a good, bad and ugly quarter for the downtown office market,” commented Paul Morassutti, Executive Managing Director for CBRE Limited.

Downtown Vancouver’s 120 basis points (‘bps’) drop reverses 2015’s trend of rising vacancy with the new product delivered to the market last year actively being leased by tenants.  The addition of new supply to this market has provided an opportunity for firms that were previously located in the suburbs to move downtown with a resulting increase in the suburban vacancy rate from 12.2% to 14.3% in the quarter.

Calgary continues to face well documented challenges with the downtown vacancy rate breaching the 20% mark for the first time since 1983, closing Q1 at 20.2%.  Correspondingly, average asking net rents saw an 11.7% slide in the quarter from $23.74 to $20.97 psf.  However suburban office vacancy, although still high at 19.1%, held firm from the previous quarter.  Additionally, Calgary’s industrial market remained robust, posting a modest 30 bps rise in the availability rate to 8.1% despite almost 1.0 million sq. ft. of new supply being added in the quarter. 

“The flood of sublets and the contracting energy sector are still causing substantial pain for the Calgary market and the aftershocks of the commodity price decline are likely to persist through to 2017.  However, Calgary’s suburban office and industrial markets are proving to be more resilient as the make-up of tenants within these assets tends to be more reflective of the overall Canadian economy and, to a certain extent, less energy-centric.  Nevertheless, it’s important to note that these markets still retain significant exposure to future downturns,” added Morassutti.

The performance of Edmonton’s office market continues to be more robust than its Calgary counterpart, with the overall downtown vacancy rate drifting up 40 bps to 11.1%.  “Edmonton has been more insulated from the pain being experienced in the oil patch as its tenant base is more diversified and the provincial government is a major tenant in the city.  Like Calgary, there is a lot of new office product coming online, however it will renew Edmonton’s large supply of old office stock that is quickly becoming undesirable based on the needs of the modern office tenant.  In addition, at 14.6%, the percentage of downtown vacant space that are subleases is far more manageable than Calgary where it is 43.0%,” commented Raymond Wong​, Executive Director of Research.

There was robust performance in the industrial market nationally with availability rates decreasing in six major markets.  Despite energy-related economic uncertainty, Western Canada led the way in industrial demand.  Edmonton’s industrial market saw a 50 bps drop in the availability rate to 7.9%, with 1.1 million sq. ft. of positive net absorption achieved during the quarter.  This is despite over 600,000 sq. ft. of new supply, from 10 new projects, delivered in the same timeframe.  Calgary saw 392,000 sq. ft. of positive net absorption and the availability rate continues to decline in Vancouver which has dropped from 7.0% to 4.1% in little over a year and is at a five year low.

The GTA achieved a record low availability rate during the quarter. At 3.9%, it surpassed the previous record of 4.1% set in 2000 and the GTA continues to have one of the lowest availability rates in North America.  Availability is also is declining in Southwestern Ontario, in particular the Waterloo region, which has experienced a steady increase in demand causing the availability rate to fall by over a third since the start of 2010 to 5.6% in Q1 2016.

“The low price of oil, low interest rates and a low loonie are all providing a lift to our manufacturing industry and we’re seeing that play out in the performance of the industrial market which is gathering real momentum.  This is not just evident in the historic lows achieved in Toronto and Vancouver, but across Canada. Capital expenditure on machinery and equipment, transportation and warehousing are growing and we expect to see more improvements in manufacturing conditions.  As a result, expect availability rates to come down further in markets such as Winnipeg, London and Waterloo Region,” added Wong.

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About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com. 

In Canada, CBRE Limited employs approximately 1,890 people in 20 locations from coast to coast. Please visit our website at www.cbre.ca.


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