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It was quite the year for commercial real estate, and the final quarter of 2020 saw Canadian office and industrial markets heading in different directions.
The national office vacancy rate rose to 13.4%, a high last hit in 2004, while industrial availability fell to 3.3% as 23.1 million sq. ft. of new space was delivered and quickly leased up.
“Commercial real estate is a study of contrasts right now, but trajectory isn’t everything,” CBRE Canada Vice Chairman Paul Morassutti noted. “The office market isn’t as bad as the industrial market is good and it’s important to dig into the numbers.”
Office vacancy is up
Canada’s downtown office vacancy rate rose to 13.0% in the fourth quarter, compared to 9.8% a year earlier. Both direct and sublet space increased in nearly equal measure.
In Toronto, downtown office vacancy rose to 7.2%. The 2.6 million sq. ft. of sublet space on the market represents 40.4% of all vacant space downtown, an all-time high.
Vancouver downtown vacancy rose to 5.8%, while Montreal (10.2%), Calgary (29.5%), Edmonton (20.1%) and Ottawa (9.5%) downtown office vacancy rates also jumped up in Q4.
"Without question, there is hardship behind the numbers,” Morassutti said, “but it’s also worth noting that our downtown office markets are moving in a more balanced direction for the first time in a decade. It’s neither a tenant nor landlord market and this is where the best conversations can happen."
Industrial demand is unrelenting
Canada’s major industrial real estate markets continue to benefit from unrelenting demand for space amid a surge in e-commerce and logistics activity.
This resulted in the drawdown of 10.4 million sq. ft. of industrial space nationwide in the final quarter of 2020, well above the quarterly five-year average of 6.0 million sq. ft.
Developers remain bullish on the industrial market, with an additional 26.8 million sq. ft. under construction nationwide.
Toronto’s industrial availability rate held steady at 2.0% for the third consecutive quarter, despite 12.1 million sq. ft. of new supply in 2020, the largest recorded amount of new construction in a single year.
Vancouver’s industrial availability rate fell to 2.3%, down from 2.8% in Q3.
Montreal has the lowest industrial availability rate in that city’s history, at 2.1% (the 10-year average is 6.1%). And Halifax reported a record-high 449,000 sq. ft. drawdown of industrial space in Q4, bringing that city’s year-end absorption total to a 13-year high of 569,000 sq. ft.
"We can’t build industrial space fast enough," said Morassutti. "There’s a huge amount of new space being built, but until then, industrial users will need to be creative to keep up with customer demand, including optimizing existing facilities and converting older industrial space."