June 27, 2005

Office vacancy rates fall to 3-year low

TORONTO

The national vacancy rate in office buildings has fallen below 10 per cent for the first time in three years, according to Royal LePage Commercial Inc.

The rate dropped by 0.8 percentage point to 9.5 per cent during the second quarter, one of the largest decreases in five years and bodes well for construction industry.

“The conditions we have today are an early indicator of a growing confidence on the part of corporations,” Colum Bastable, chief executive of Royal LePage Commercial, said in an interview.

“In the last number of years, there had been uncertainty and some reluctance on the part of tenants to either extend leases or expand their space.”

The Greater Toronto Area, home to nearly half of Canada’s office space, saw its rate drop from 9.9 per cent to 9.5 per cent. In the Bay Street-centred financial core, the rate fell from 8.9 per cent to 8.2 per cent. Royal LePage said that supports plans for new construction in the area.

Occupied space in Toronto sits at 145.8 million sq.ft., above its peak during the boom year of 2000, when it was 143.7 million sq.ft.

Bastable said he hopes to see more office space coming on stream in Toronto.

Evidence of Canada’s hot office real estate market came earlier this month, when a group led by Brookfield Properties Corp. scooped up O&Y Properties Corp.’s portfolio of 25 properties in six Canadian markets for about $2 billion.

The deal, which saw downtown Toronto’s First Canadian Place change hands, was the largest in Canadian real estate history.

The national capital region saw its low vacancy rate hold steady at 5.3 per cent during the quarter, while its suburbs experienced a one per cent drop to 11.9 per cent.

“This is significant as it shows that suburban offices, left empty by the high-tech meltdown in 2000, are starting to fill up again,” Royal LePage said.

Kanata, Ont., the hardest-hit area, had a vacancy rate of 28.8 per cent in the first quarter of 2004. It is now 19 per cent.

Winnipeg added about 150,000 sq. ft. of inventory during the quarter, and yet its vacancy rate dropped during six months from 8.1 per cent to 7.2 per cent. Royal LePage said the “cost conscious city” posted a 5.9 per cent rate for its “class B” space.

Vancouver’s office vacancy rate remains above 10 per cent, but the city is “swinging in favour of the landlord,” said Hendrik Zessel, vice-president of Vancouver Royal LePage Commercial. “Anything with a view is moving.”

Vancouver’s rate fell from 11.5 per cent to 10.2 per cent during the quarter.

British Columbia’s unemployment rate sits at 5.7 per cent, its lowest in 25 years. Rental rates are starting to rise as the city prepares for the 2010 Olympics, which will require up to 180,000 sq.ft. of office space, Royal LePage said.

As oil prices soar, Calgary’s vacancy rate has dropped from eight per cent to 7.1 per cent, the lowest since 2000.

“We’re seeing a tremendous spike in early renewal activity among larger tenants who are anxious to position themselves right now,” said Chris Anderson, a vice-president at Royal LePage.

Non-oil and gas tenants are starting to be squeezed out of the oil-patch office market, he said in a release.

“For the first time in two decades, the suburbs are being seen as a viable alternative for traditional downtown tenants and we’re already hearing about plans for new construction,” he said.

The Canadian Press

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