A new report from CBRE Limited suggests that the 22.2 million square feet of office space currently under construction in Canada has just eclipsed the peak measured in 2008.
The third quarter report counted 23 office buildings going up in Vancouver, Calgary, Toronto and Montreal. Shovels should be in the ground for an extra five buildings shortly and the CBRE warns that the surge in new towers could outstrip demand for office space.
“Developers are responding to real demand from tenants for new office towers. This is especially true in downtown Vancouver and Montreal, where modern space is at a premium as a result of little new construction over the last decade,” said John O’Bryan, Chairman of CBRE Limited, in the news release.
“From a national perspective, the potential overshoots are in Calgary and Toronto, which are the same markets that were identified as risks in 2008. These cities are the most dynamic in Canada in terms of office space absorption, but they will both need an economic performance similar to the post-2008 period in order to smoothly absorb all of the new supply that is coming on stream.”
Most of the major office markets in Canada had a less-than stellar 2013 with the overall downtown vacancy increasing by 110 basis points (bps) year-over-year. Tenants have returned 2.3 million square feet of space space to the market this year as well. Another dark cloud? Canadians cities are also are seeing decreased demand for office space, with nine of the ten office markets likely to end the year with negative absorption.
“The real test is what happens during the 15-24 months prior to the first office tower completions in 2014-2015,” said O’Bryan. “The existing inventory of office space is largely owned by the same groups that are building the new towers, so they have the ability to keep the market in check.”
Here’s how some of the major markets fared:
- After a sleepy decade that saw no new construction, the BC city bounced back with seven Class A office buildings (making up 2.2 million square feet) in the works. They’re expected to be completed between 2015 and 2017.
- The burgeoning office construction market goes hand in hand with the uptick in high-rise residential construction and a renewed focus on expanding public transit within Metro Vancouver as well.
- Some of the biggest new construction projects include the MNP Tower at 1021 West Hastings St. which will have a total of 290,000 square feet of space and 745 Thurlow Street, which will see 418,000 square feet in total.
- Even though six office towers with a total of 5.3 million square feet of space have gone up since the financial crisis, vacancy rates are nearing historic lows, especially in Class AA properties.
- The downtown office market should get six new buildings over the next two years that will add 4.6 million square feet of space to the market. That new addition represents about 12 per cent of the current downtown stock.
- There’s still about 2.9 million square feet of downtown office in the planning phase though these new builds could be on the market around 2017.
- Some of the big name projects include the The Bow at 500 Centre Street E., which is made up of a total of 1,900,000 square feet, and Centre 10 at 517 10th Avenue SW., which will be made up of 355,000 square feet of space.
- Office construction has been steadily increasing over the past few years, largely spurred by an influx of people moving into the city (we recently analyzed the trend in infographic form).
- Of the 5.9 million square feet of of Class A office space under construction in the downtown Toronto, the first project should wrap up this year and the remaining towers should all be ready by 2017.
- Among the new construction buildings going up in Toronto, notable projects include One York St., which will feature 800,000 square feet of space and 45 Bay St., which will be made up of 1,000,000 square feet in total.
- CBRE has called the surge in new office development a “renaissance,” with four projects under construction and more in the pre-leasing stage. Altogether, the four towers total 945,000 square feet of space.
- Proof that residential and office construction typically goes hand-in-hand in big cities, three of the four projects are mixed use developments that are being built in conjunction with condo projects.
- The Deloitte Tower is the largest under construction and the only one to be made up entirely of office space. In total, it will be measure 495,067 square feet. The Aimia tower will measure 234,476 square feet.