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Thursday, August 7, 2014

New office supply outpacing demand in Canada

By Mark E. Rose (Toronto)

In this blog post, I would like offer a glimpse into our Mid-Year 2014 Canada, U.S Office Market Report, to be released next week.

Canada’s office vacancy rate finished the first half of 2014 at 9.2% – up 120 bps from one year ago. This shift is not entirely surprising and is largely attributed to new supply outpacing demand, coupled with workplace strategies resulting in the release of excess space via a burgeoning sublet market. However, the ongoing rationalization of space is something we will watch carefully, as it will moderate future absorption levels. Remember the old cliché: Past performance is no indication of future results.

Collectively, Canada’s downtown office markets posted a vacancy rate of 7.2% at mid-year 2014, compared with 5.7% 12 months ago – with vacancy rising to varying degrees in all but two downtown markets, namely Guelph and Regina. In Canada’s suburban markets, vacancy jumped an estimated 120 bps to 11.8% at mid-year 2014 – with Quebec City the tightest, coming in at just under 5%.

However, any demand-supply imbalances experienced by the markets to date have not deterred the development community, which is reflected in construction figures. Nationally, almost 6 million square feet (msf) of new office space was delivered over the past 12 months. Of this 6 msf, approximately three-quarters was completed in the suburbs – with Vancouver, Calgary and Montreal accounting for two-thirds of the completed area.

Through the first six months of 2014, more than 22 msf was under construction across Canada, with downtown product outpacing suburban construction by nearly a two-to-one margin. This discrepancy reflects the ongoing phenomenon of major employers seeking to be closer to the Millennials who are living and working in increasing numbers in major urban cores.

Please watch for my blog tomorrow on U.S. office vacancy expected to dip further…

You can also now listen to my Q3 2014 Commercial Real Estate Audiocast “New office supply outpacing demand in Canada, int’l capital continues to favour U.S., rents continue to rise in London” here:

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