The recession isn't over yet, but third-quarter office stats suggest that
business is starting to make some positive moves
TORONTO, Oct. 22 /CNW/ - While demand for office space remains weak across most Canadian office markets, third-quarter national office results released today by Cushman & Wakefield indicate that business fundamentals are improving, as many companies have finished purging themselves of unwanted space and are once again tackling occupancy decisions.
Surprisingly, absorption of office space across Canada shifted to the positive side during the third quarter, after two tense quarters of absorption averaging negative 2.4 million square feet per quarter. Absorption reflects the change in occupied space over a period of time, and represents one barometer of demand strength.
"It's too early to say that we're out of the woods, however, our research proves we're faring better than expected", says Pierre Bergevin, President and CEO, Cushman & Wakefield. "Even though private spending is expected to remain sluggish through next year, government spending will help bridge the gap - and organizations are definitely taking advantage of the lull to explore ways to achieve new efficiencies in their real estate."
Winnipeg saw the strongest positive absorption of any Canadian city at almost 800,000 square feet, resulting from the completion and occupancy of Manitoba Hydro Place, a 23-storey award-winning sustainable building on Portage Avenue.
Winnipeg was not alone -- Toronto, Ottawa, Saint John, Halifax, and St. John's also experienced positive absorption in the third quarter. Additionally, Vancouver's central area saw only marginally negative absorption and total sublet space fell to 639,000 square feet from 760,000 square feet in one quarter. The city's suburban markets did not fare as well, as a number of tenants downsized or shut their doors due to the economic downturn.
Calgary continued to bear the brunt of weak natural gas prices in the midst of a strong office development cycle. Absorption was negative 690,000 sq ft over the quarter. The vast majority of occupancy loss was in Calgary's central markets where vacancy reached 10.4%, up from 8.7% last quarter. With almost 5.5 million square feet of new development still under construction in the downtown area, vacancy rates are expected to climb substantially; however, demand will largely remain dependent on energy prices, which have started to rise.
While Edmonton has seen stronger demand fundamentals than Calgary, the city saw negative absorption of 185,000 square feet in its central area during the third quarter, though its vacancy rate, while rising slowly, remains a tight 5.0%.
Toronto experienced positive absorption of more than 350,000 square feet, in marked contrast to the past two quarters when absorption averaged negative 770,000 square feet per quarter. Downtown Toronto is in the throes of a major development cycle that will see 4.5 million square feet of new space enter the market by the end of 2011. In the third quarter of 2009, two very significant developments opened their doors to high praise for their innovative, sustainable designs, the RBC Centre at 1.25 million square feet and the Bay Adelaide Centre at 1.16 million square feet. These towers are approximately 73% preleased and more than 400,000 square feet of this space was occupied at the end of the third quarter.
Montreal's central area experienced very weak demand for the third consecutive quarter, with absorption of negative 270,000 square feet. The vacancy rate in central Montreal remains tight, however, at 8.1% -- and there are no plans for new construction. Suburban Montreal markets have fared better, experiencing marginally positive absorption of 24,000 square feet over the third quarter.
Ottawa's central area is one of tightest in the country with a vacancy rate of 4.1%. Absorption is expected to remain positive because of continued federal government activity. The third quarter saw the announcement of a new head office for Export Development Canada (EDC) in downtown Ottawa. The 18-storey, 520,000-square foot project will be the largest new office building constructed in the downtown core in 25 years.
Three of the five eastern Canadian markets tracked had positive absorption over the quarter, Saint John, Halifax, and St. John's. Fredericton and Moncton had negative absorption of 55,000 square feet and 33,000 square feet respectively. St. John's continues to boast the tightest central area vacancy rate in the country at 1.6%.
Vacancy rose across Canadian markets, reaching 8.2%, up from 7.6% one quarter ago. Much of this rise occurred in the central markets, driven in part by the addition of 3.5 million square feet of new inventory. In Toronto, two new sustainable towers opened for business, the RBC Centre and the Bay Adelaide Centre, adding 2.4 million square feet to the downtown market.
Despite continued soft demand, leasing activity in some markets improved over the third quarter. Consolidations are becoming more active, which generally leads to a reduction in occupied space as tenants aim to reduce costs and preserve capital.
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Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 227 offices in 59 countries and more than 15,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, and Consulting Services, including business and real estate consulting. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushmanwakefield.com.
SOURCE CUSHMAN & WAKEFIELD
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