Spotlight on Toronto and Calgary where new supply is about to hit an already soft market

(Source: CNW Group

Canadian office and industrial markets are beginning to experience the full impact of the economic downturn as Q1 2009 is characterised by rising availability rates, and a sharp increase in sublet space in some major Canadian cities. Although Canada’s real estate market is still relatively stable, market analysis conducted by Colliers International shows the impact that recent Canadian job losses and stalled economic growth is now having on the commercial real estate sector. Of note is a growing trend by companies to shed leased space that was earmarked for future growth requirements as they reorganize business operations to endure the current economic climate.

The report, Colliers International Office & Industrial Canadian Snapshot, reveals that sublet space – one of the leading indicators of the health of the office market – has jumped during Q1 2009, and now accounts for 19.5 percent of total vacant office space across the country. The flipside of this trend is the opportunities presented to tenants by way of potentially discounted rents for built-out premises that are often “turn-key” on short notice. The average national vacancy rate for downtown and suburban markets rose to 5.9 percent in Q1 2009, up from 5.1 percent in Q4 2008. Average downtown gross rents have fallen to $47.00 per sq. ft, from a high of $50.40 in Q4 2008, with average suburban gross rent holding at $31.10 per sq. ft. This dynamic has lead to the introduction of increased incentives in many areas, as landlords compete for quality tenants.

“These figure are by no means bleak,” says Ian MacCulloch, Canadian Vice President of Research with Colliers International. “We entered the current recession with historically low vacancy rates and significant new supply coming to market in only two cities. Although demand for office space is likely to remain soft across most regions throughout 2009, we expect to see a healthy bounce once corporate Canada regains confidence. The rise in sublet space seen during Q1 is in line with expectations, and by no means suggests an impending commercial real estate crisis.”

The industrial markets also saw a rise in availability during Q1 as demand softened and new supply was delivered but was slow to be absorbed. Counter-intuitively, rental rates have remained stable during this period, driven predominately by western markets where a downturn has been slower to take hold. Canada’s eastern cities, Toronto and Montreal – that are more heavily weighted to distribution, warehousing and the auto industry – have borne the brunt of the industrial market downturn to date, and are expected to return to a more solid position in the medium term, which by current forecasts points toward 2010 and 2011.

Read the full article, along with National Office Key Market Indicators, “Canadian Office Markets Face An Upswing in Sublease Vacancy as Economic Downturn Begins to Bite” CNW Group (April 20, 2009).

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