Canada maintains sub-10% vacancy rate, while U.S. office market shows improvement

Avison Young releases Mid-Year 2014 Canada, U.S. Office Market Report

TORONTO, Aug. 13, 2014 /CNW/ - Canada's overall office market softened during the 12-month period ending at mid-year 2014, while the U.S. office market experienced strengthening tenant demand, positive net absorption and falling vacancy rates. Despite rising slightly, Canada's average vacancy of 9.2% points to the ongoing health of the Canadian office market, and still compares favourably to the U.S. at 13.5%. The gap between Canadian and U.S. vacancy rates has narrowed during the past year.

These are some of the key trends noted in Avison Young's Mid-Year 2014 Canada, U.S. Office Market Report, released today.

The report covers the office markets in 39 Canadian and U.S. metropolitan regions: Calgary, Edmonton, Guelph (Southwestern Ontario), Lethbridge, Mississauga, Montreal, Ottawa, Quebec City, Regina, Toronto, Vancouver, Winnipeg, Atlanta, Austin, Boston, Charleston, Chicago, Columbus, Dallas, Denver, Detroit, Fairfield County, Houston, Las Vegas, Long Island, Los Angeles, New Jersey, New York, Orange County, Philadelphia, Pittsburgh, Raleigh-Durham, Reno, San Diego County, San Francisco, San Mateo, South Florida, Tampa and Washington, DC.

"With improving economic conditions in the U.S. and Canada experiencing moderation, office markets across North America remain healthy – with strong indicators for downtown areas," comments Mark E. Rose, Chair and CEO of Avison Young. "As we have seen with industrial markets, quite a bit of momentum is building in the U.S., as increasing demand from tenants and falling vacancy rates have led to a substantial increase in new development. Construction is partially being driven by tenant demand for modern, efficient workspaces that are in transit-served and mixed-use environments."

Rose continues: "Office job growth in the U.S., led by business and professional services employment, has continued to expand this year, buoying confidence in the leasing and investment sectors, and leading to rising rental rates and strengthening statistical performance for office product. Some Canadian markets have had the wind taken out of their sails lately, but an uptick in cross-border activity could help rectify the imbalance between supply and demand that some markets are witnessing, as considerable levels of new supply are scheduled for delivery over the next several years."

"North America's office markets are well-positioned to show further growth for the remainder of the year and into 2015. Even markets that have seen slower recovery, negative absorption or oversupply present opportunities for our tenant and investor clients," says Rose.

According to the report, of the 39 office markets tracked by Avison Young across North America, 23 markets saw vacancy rates fall by varying degrees during the 12-month period ending June 30, 2014. The difference between the two countries' year-over-year improvement was quite apparent as two-thirds of the U.S. markets posted vacancy decreases.

Collectively, the Canadian office market registered an overall vacancy rate of 9.2% at mid-year 2014 – up from 8% at mid-year 2013 – and is trending towards the recent recessionary peak of 9.9% in mid-year 2010. Though still in double-digit territory, the U.S. office market vacancy rate is trending lower, finishing the first half of 2014 at 13.5%, down from 14.2% one year earlier.

"Improving market fundamentals in the U.S. office sector are a welcome respite, and although the recovery has not been moving as quickly as we would like it to, metrics are trending in the right direction," states Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young. "An improving U.S. economy and commercial real estate sector – in this case, the office sector – bodes well for Canada."

The report shows that more than 83 million square feet (msf) was under construction across Canada and the U.S. at mid-year 2014, up from 66 msf one year prior. In Canada, downtown areas account for roughly two-thirds of construction activity, whereas in the U.S., approximately 61% is focused in the suburbs. 

Eclipsing the 500-msf inventory mark, the Canadian office market saw an incremental rise in vacancy from mid-year 2013 to mid-year 2014 as some markets worked their way through supply-demand imbalances. Absorption levels were uneven across the country; and although levels were positive in the suburbs, notable negative absorption in downtown areas left the overall Canadian market with a net loss in occupancy during the 12 months ending at mid-year 2014.

Workplace strategies undertaken by corporations in the hopes of gaining space-planning efficiency across their operating platforms, along with their desire to attract and retain the emerging millennial workforce, are transforming office-market dynamics across the country. The resulting demand for new space has spurred an active development pipeline while, at the same time, surplus space continues to make its way to the sublet market. This situation has allowed some landlords to refurbish their product to remain competitive, and given tenants more options at various price points. 

Notable report highlights include:

  • Vacancy climbed in 10 of 12 Canadian markets surveyed, with increases of 20 to 590 basis points (bps).

  • Seven of 12 markets posted single-digit vacancy rates versus 10 one year ago, with five of the 12 markets recording rates below the national average.

  • Western office markets showed modest growth in vacancy, averaging 8.7% at mid-year, while occupancy in Eastern markets contracted significantly, ending the midway point of 2014 at 9.5% vacant.

  • Vacancy is lowest in Quebec City (5.8%) and highest in Lethbridge (18.5%).

  • Regina recorded the greatest swing in vacancy, up 590 bps year-over-year.

  • Canada's downtown markets posted a 7.2% vacancy rate – up 150 bps year-over-year. In contrast, suburban vacancy increased 120 bps to 11.8% as the downtown/suburban vacancy spread narrowed to 460 bps.

  • Nationally, almost 6 msf of new office space was delivered between mid-year 2013 and mid-year 2014 – 75% in the suburbs. 

  • More than 22 msf is under construction in Canada (58% preleased, equating to 4.4% of existing inventory) – downtown is outpacing suburban development by nearly two to one.

  • Toronto and Calgary each represent more than 31% of the Canadian under-construction total and show similar dominance in construction activity when downtown and suburban markets are considered separately.

  • Calgary posted the highest downtown class A average asking gross rent at $51.17 per square foot (psf) – significantly above the national downtown average of $43.99 psf.

Argeropoulos adds: "With all of this new development coinciding with new workplace strategies that require less square footage for the same number of employees, demand levels in the Canadian office market of tomorrow could be considerably different from what we are accustomed to, resulting in absorption figures below historical norms going forward. The market will still have to contend with residual vacancy and a profusion of sublet space in buildings of varying vintages, including some traditional class A towers as well as older product in all classes."

"The outcome for stakeholders – both landlords and tenants – is good news. Landlords with vacancy as a result of losing tenants to new developments have an opportunity to bring their portfolio to a more competitive level, while tenants will enjoy a marketplace offering numerous options for both more traditional and modern premises at various price points."

As has occurred in Canada, the U.S. office market continues to experience tenants choosing to relocate for efficient space design and quality, as well as increased demand for urban, transit-served and work-live-play environments.

"Most U.S. office markets reported significant improvement year-over-year and unemployment rates continued to trend downward," notes Earl Webb, Avison Young's President, U.S. Operations. "And, while some of the top-tier markets have a generous pipeline of office development underway, preleasing levels are strong, pointing to further momentum as we approach year-end 2014."

The 3.9-billion-square-foot (bsf) U.S. office market witnessed marked improvement year-over-year, with an average vacancy of 13.5% at mid-year 2014 compared with 14.2% one year earlier. Supporting tenant demand for mature urban markets, the overall vacancy in the downtown markets (totaling 1.3 bsf) fell to 11.1% (-100 bps) at mid-year 2014, while overall vacancy in the suburban markets (totaling 2.6 bsf) improved to 14.8% (-40 bps) during the same period

Notable report highlights include:

  • Two 1-msf-plus transactions in the first half of 2014: 1 msf to Toyota (new) in Dallas, and 1.2 msf (renewal) to Credit Suisse in New York City.

  • All but two markets recorded positive net absorption for the 12-month period ending June 30, 2014.

  • In downtown markets, the 12.5 msf of net absorption that occurred in the last year is reflected in falling vacancy levels.

  • Market-wide, inclusive of suburban areas, more than 40 msf was absorbed from mid-year 2013 to mid-year 2014 – a 219% increase over the prior year's absorption.

  • Decreases in vacancy were most notable in the downtown markets of Dallas (-330 bps), Atlanta (-260 bps), Fairfield County (-260 bps), San Francisco (-250 bps) and South Florida (-210 bps).

  • The markets with the lowest overall vacancy rates include San Mateo (9.6%), Pittsburgh (8.7%), Columbus (8.6%) and San Francisco (6.4%).

  • Asking class A rents showed notable growth year-over-year and averaged $49.30 psf gross for downtown markets – a 2.2% increase (+$1.08 psf).

  • The suburban class A asking rent rose to $28.52 psf gross overall at mid-year 2014, jumping 3.4% (+$0.94 psf) above the same point in 2013.

  • New York demonstrated the greatest rent increase, climbing to an average $71.03 psf (+$6.58 psf) at mid-year 2014 from $64.45 psf at mid-year 2013. The $71.03 rate also represented the highest asking rent by far for the downtown markets.

  • Nationally, almost 30 msf of new office space was delivered between mid-year 2013 and mid-year 2014 – 79% in the suburbs. 

  • Of the 61 msf under construction, four markets combined represented 54% of the national total: Houston with 13.7 msf (22.5% of total under construction), New York (7.7 msf, 13%), Washington, DC (5.9 msf, 9.6%), and Dallas (5.5 msf, 9.1%).

Webb concludes: "Market indicators in the U.S. cities with robust energy and technology industries are leading the country; however, relatively modest construction volumes overall and an uptick in office job growth and tenant demand resulted in vacancy decreases in the majority of U.S. markets – a trend that should carry through year-end 2014 and into 2015."

Please turn to the following pages of the report for highlights in the local markets. For further info/comment, please contact the Avison Young representatives listed below. Thank you.

p. 3 Canada & U.S.: 
Bill Argeropoulos, VP & Director of Research (Canada), 416.673.4029 or cell: 416.906.3072
Margaret Donkerbrook
, VP, U.S. Research, 202.644.8677

p. 9 Calgary:
Todd Throndson, Principal, 403.232.4343

p.10 Edmonton:
John Ross, Managing Director, 780.429.7564

p.11 Guelph (Southwestern Ontario): 
Ray Robinson, Managing Director, 226.366.9030

p.12 Lethbridge
Doug Mereska, Managing Director, 403.330.3338

p.13 Montreal:  
Denis Perreault, Managing Director, 514.905.0604

p.14 Ottawa
Michael Church, Principal, 613.567.6634

p.15 Quebec City
Denis Perreault, Managing Director, 514.905.0604

p.16 Regina
Richard Jankowski, Managing Director, 306.359.9799

p.17 Toronto
Mark Fieder, Principal, 416.673.4051

p.18 Toronto West/Mississauga:  
Martin Dockrill, Principal, 905.283.2333

p.19 Vancouver:
Michael Keenan, Principal, 604.647.5081

p.20 Winnipeg:
Wes Schollenberg, Managing Director, 204.947.2886

p.21 Atlanta:
Steve Dils, Principal, 404.865.3663

p.22 Austin:
Michael Kennedy, Principal, 512.970.2400
or Burke Kennedy (for week of Aug 13), Principal, 512.717.3070

p.23 Boston:
Michael Smith, Principal, 617.575.2830

p.24 Charleston, SC:  
Jeremy Willits, Managing Director, 843.270.9205

p.25 Chicago
Danny Nikitas Principal, 312.940.8794

p.26 Columbus, OH
Scott Pickett, Principal, 614.264.4400

p.27 Dallas
Greg Langston, Principal, 214.269.3115

p.28 Denver:
Alec Wynne, Principal, 720.508.8112

p.29 Detroit
Jim Becker, Principal, 313.510.2825

p.30 Fairfield County:
Sean Cahill, Principal, 203.614.1264

p.31 Houston:
Rand Stephens, Principal, 713.993.7810

p.32 Las Vegas
Joseph Kupiec, Principal, 702.472.7978

p.33 Long Island
Ted Stratigos, Principal, 516.962.5399

p.34 Los Angeles:       
Christopher Cooper, Principal, 213.935.7435                             

p.35 New Jersey
Jeff Heller, Principal, 973.753.1100

p.36 New York
Arthur Mirante, Principal, 212-729-1896

p.37 Orange County:   
Christopher Cooper, Principal, 213.935.7435                             

p.38 Philadelphia:      
David Fahey, Principal, 610.276.1081                              

p.39 Pittsburgh
George (Duke) Kingsley, Principal, 412.944.2131

p.40 Raleigh-Durham
John Linderman, Principal, 919.612.3000

p.41 Reno
John Pinjuv, Managing Director, (775) 332-7300

p.42 San Diego County:
Christopher Cooper, Principal, 213.935.7435                             

p.43 San Francisco
Nick Slonek, Principal, 415.322.5051

P.44 San Mateo
Randy Keller, Principal, 650.425.6425

p.45 South Florida
Pike Rowley, Principal, 954.938.1807

p.46 Tampa:                                                                                                                            
Ken Lane, Principal, 813.444.0623

p.47 Washington, DC:                                                                                                             
Keith Lipton, Principal, 202.644.8683

Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,500 real estate professionals in 59 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

• Click here to view Avison Young's Mid-Year 2014 Canada, U.S. Office Market Report:

For further information/comment/photos:

Sherry Quan, Principal, National Director of Communications & Media Relations,
Avison Young: 604.647.5098; cell: 604.726.0959

Bill Argeropoulos, Vice-President and Director of Research (Canada), Avison Young:  
416.673.4029; cell 416.906.3072

Margaret Donkerbrook, Vice-President, U.S. Research, Avison Young: 202.644.8677

Mark Rose, Chair and CEO, Avison Young: 416.673.4028

Earl Webb, President, U.S. Operations, Avison Young: 312.957.7610

Avison Young was a winner of Canada's Best Managed Companies program in 2011 and 2012 and requalified in 2013 to maintain its status as a Best Managed company.

Follow Avison Young on Twitter:

For industry news, press releases and market reports: 

For Avison Young listings and deals: 

Follow Avison Young Bloggers:

Follow Avison Young on LinkedIn:

SOURCE: Avison Young Commercial Real Estate (BC)

For further information: Media Relations: Sherry Quan, (604) 647-5098 or (604) 726-0959 cell, email:


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890