Calgary and Toronto office markets demonstrate roughly inverse trajectories thus far in 2016. CBRE’s recently released statistical summary of 10 major Canadian markets shows that about 1.3 million square feet of Calgary office space was vacated during the first six months of the year, while the Toronto market has seen the same amount of positive absorption. This contributes to an overall vacancy rate of 9.4 per cent in Toronto versus 21.6 per cent in Calgary.
Vancouver boasts the highest average net rents for Class A office space at $31.28 per square foot downtown and $23.38 in the suburbs, although this is still a drop from midyear 2015. Toronto’s average net rents also slipped from $29.74 per square foot for downtown Class A as of June 30, 2015 to $28.38 this year, whereas Calgary’s downtown Class A rents plummeted from $27.82 to $19.59 during the same period.
Suburban Class A net rents at $21.11 per square foot surpass the downtown average and remain more stable relative to a year ago when the average was $23.39 per square foot. This reflects much lighter losses in Calgary’s suburban market thus far in 2016, with just 20,000 square feet of negative absorption, compared to the dramatic tenant exodus downtown. The suburban vacancy rate now sits at 20.6 per cent versus 22.2 per cent downtown.
The average vacancy rate across all 10 surveyed markets is 12.8 per cent — a rise of 140 basis points (bps) from 11.4 per cent at midyear 2015 — but this hides discrepancies between downtown and suburban markets, and from city to city. Beyond Toronto’s buoyant activity, Vancouver, Winnipeg, Montreal and Halifax also recorded positive absorption, but the arrival of new space has offset the impact on vacancy rates.
Toronto gained about 1.4 million square feet of new office space in the first half of the year — 1.1 million downtown and 300,000 square feet in the suburbs. All of Vancouver’s new product — about 430,000 square feet — is in the suburbs, while Calgary added more than 600,000 square feet downtown and nearly 500,000 square feet in the suburbs. Given the new supply, Toronto’s overall vacancy rate has dropped just 30 bps since June 30, 2015 and Vancouver’s has climbed 20 bps in the same period.
Meanwhile, downtown-suburban discordance is particularly notable in Toronto with the a suburban vacancy rate nearly 10 per cent higher than in the central city. Average net rents for Class A office space are also much lower at $17.30 per square foot.
“Downtown vacancy rates have been on a downward trend since 2013 despite almost four million square feet of new supply delivered in the same timeframe,” observes Paul Morassutti, CBRE’s executive managing director.
He commends proactive leasing strategies for steady refilling of space emptied as traditional downtown tenants relocate to new buildings. Tenant demand is an even more significant element, suggesting that there was pent up demand for downtown locations and the market will bear the new influx of space with relative ease.
“Many commentators were quick to label Toronto’s office market as oversupplied and point to the 2.9 million square feet of new builds currently under construction as evidence. However, this represents only 3.4 per cent of the total downtown inventory, which is extremely modest, particularly when compared to other leading North American markets,” Morassutti contends.
In contrast, the nearly 2.4 million square feet of space still under construction in downtown Calgary equates to about six per cent of the market. Edmonton, with a current downtown vacancy rate of 11.5 per cent, faces an even greater onslaught with 1.8 million square feet under construction translating into 12 per cent of downtown office inventory.