The economy is gathering steam as Canadians get vaxxed, according to CBRE’s latest stats report
Downtown office leasing is on the rise in major cities and sublease space is suddenly in high demand.
But good luck to those searching for big blocks of prime industrial real estate. Across the country, industrial availability rates hit new lows and new supply remains limited. Waterloo Region now has the lowest industrial availability rate in North America, at 0.9%.
With office tenants preparing to welcome employees back in the second half of the year, tours and leasing renewal discussions are picking up. In Q2, office vacancy rates rose by the smallest amount since the onset of the pandemic.
Canada boasts North America’s four tightest downtown office markets: Vancouver’s vacancy is at 6.6%, followed by Toronto (10.0%), Ottawa (10.6%) and Montreal (11.1%).
Some companies are pulling their sublets off the market to use the space and other groups are actively leasing in anticipation of an economic, as sublets offer flexibility and convenience with limited capital expenditures.
Nearly 1 million sq. ft. of office space previously put up for sublease was either cancelled or leased in Canadian downtown centres in the second quarter, with half of that in Toronto.
“Sublet listings can be knee-jerk reactions in a sudden market correction. The fact that sublets are being cancelled or leased up by new business is a very good sign and this is only just the beginning of the trend,” says CBRE Vice Chairman Paul Morassutti.
“Canada’s major office markets have fared well over the past year compared to our global counterparts and we can expect the momentum to continue to build as lockdowns are eased.”
Canada’s industrial markets are a completely different story.
There is unprecedented demand for a limited amount of industrial space in every major market and tenants now face very real limitations. “We don’t have enough space to accommodate business demand and can’t build new space fast enough,” Morassutti says.
In fact all markets outside of the Prairies have availability rates of 3.0% or less, including the three largest centres: Toronto (1.2%), Vancouver (1.1%), and Montreal (1.4%). In a single quarter the amount of space available for lease or purchase decreased by 35% in Vancouver, 28% in Montreal and 25% in Toronto.
Even in Alberta, availability rates are quickly contracting. Calgary’s availability rate decreased by 1.2% in a single quarter while Edmonton’s decreased by 0.7%.
New construction isn’t an easy answer due to skyrocketing construction costs, which are pushing industrial rent and sale prices higher and extending construction timelines.
At the current pace, London and Waterloo Region will run out of industrial space in three months’ time, Vancouver in six months, and Toronto and Montreal in nine months.
“We’re at the beginning of a new cycle,” says Morassutti. “What will businesses do and what will happen to prices for consumers when the supply of industrial space dwindles? We’re about to find out.”