Cushman & Wakefield: National Central Market Office Vacancy Rate Rises for
First Time since Q2 2010
Weakening Global Economic Conditions Translate to More Cautious Approach from
TORONTO -- October 04, 2012
The national central market office vacancy rate rose to 5.1% in Q3, up from
5.0% one quarter ago according to the National Office Trends: Third Quarter
Report, released today by Cushman & Wakefield Canada (C&W). This is the first
time these rates have increased since the second quarter of 2010, but is still
representative of some of the lowest national central vacancy rates the
country has ever seen.
“Weakening global economic conditions, decreased demand for commodities and
lower resource prices have begun to translate into softer market conditions
across some Canadian office markets, particularly in Western Canada” says
Pierre Bergevin, President and CEO, C&W Canada.
National central vacancy is still down on a year-over-year basis at 5.1% in Q3
of 2012 – it was at 5.8% in Q3 last year. Market conditions do, however remain
heavily impacted, particularly in the west, by a slowdown in the resource
“While the indicators of change are subtle, and remain for the most part in
the boardrooms of decision makers; mindsets are beginning to shift from
expansionary towards a more cautionary approach when it comes to locking down
future needs for space.”
Central market absorption was strongest in Calgary, where The Bow finally
opened its doors in the third quarter – slated to be 100 percent occupied by
EnCana Corporation and Cenovus Energy. The Bow is the tallest office tower in
Canada outside of Toronto. While this absorption recognizes an increase in
occupied space, overall market demand in Calgary has eased and tenants have
become much more cautionary as a result of declining oil prices, which began
in the summer months.
Toronto continues to show reasonable central area demand strength with
in-excess of 225,000 sf of positive absorption. All other central markets
showed weak demand, with either modest positive or negative absorption.
Vacancy in Vancouver’s central market rose from 3.7% in Q2 2012, to 4.1% in
Q3, with negative absorption in-excess of 150,000 sf over the quarter.
“The Vancouver market is heavily driven by the health of the resource sector,”
says Mark Chambers, Senior Vice President, Office Leasing, C&W Vancouver.
“With weakening fundamentals in China, the engineering and project management
sector that supports the resource industry will likely see some softening in
demand in the quarters to come.”
Vancouver’s central area Class A vacancy remains extremely tight, with a
vacancy rate of just 2.8% through Q3.
In Vancouver’s suburbs activity remained more stable, with about 440,000 sf of
positive absorption, bringing the suburban rate down from 12.7% in Q2 to 12.0%
in Q3. This was driven by a new 173,000 sf building in Burnaby that opened its
doors fully leased.
Absorption driven by occupancy of The Bow by EnCana Corporation and Cenovus
Energy put an exclamation mark on absorption over the third quarter. However,
this absorption reflects decisions made when gas prices were at their peak.
The vast majority of the space that EnCana and Cenovus will leave behind as a
result of their move has long been leased, and little new vacancy will come to
market. That said, Calgary has seen a significant change in mindsets as oil
prices softened over the summer. While the market remains remarkably tight,
tenants are far more cautious, and multiple bidding on larger blocks of space
has noticeably eased.
Although Calgary’s central vacancy rate did increase slightly from 3.1% in Q2
2012, to 3.2% in Q3, vacancy is much lower on a year-over-year basis – central
market vacancy was at 6.4% in the same time period for 2011.
“Oil prices dipped significantly over the summer months, and that did
translate into noticeably softer demand for space,” says Bob MacDougall,
Senior Managing Director, C&W Calgary. “While oil prices have since rebounded
into the low mid-90s per barrel, a number of oil juniors have brought sublet
space to market, and competitive bidding on larger blocks of space has eased
Muddying the waters of the Calgary office landscape is the impending move of
Imperial Oil from the central market to the Quarry Park development in the
suburbs. “With Imperial vacating most, if not all of its 800,000 sf in 5^th
Avenue Place, it’s likely we will see a pause in development decisions
downtown. Brookfield, for example, has 2.1 million sf of new space proposed –
this announcement may be cause for a reconsideration on their part regarding
the time frame for development of these towers.”
Through modest absorption of about 11,700 sf, the central office vacancy rate
in Edmonton decreased slightly from 7.5% in Q2 2012, to 7.4% in Q3. Most of
the trailing space that was created when the new Epcor Tower opened in October
of 2011 has been leased, in large part due to Enbridge’s expansion of 250,000
sf in three separate buildings within the past year.
Absorption was stronger in the suburbs, where almost 50,000 sf of space was
absorbed. However, the suburban vacancy rate edged up slightly from 13.8% in
Q2 to 14.1% in Q3 due to 95,000 sf of new product coming to market.
“One of the primary demand drivers in Edmonton is the government, and demand
from this sector is increasing,” says Shane Asbell, head of the office leasing
team, C&W Edmonton. “This should result in a strong fourth quarter. The
engineering sector is also in a significant expansion mode as evidenced by
Jacob Engineering’s new 95,000 sf lease in the First & Jasper Building.”
Absorption in Winnipeg’s central office market, like much of the country, was
modest with just 11,967 sf of space being taken up. With 22,000 sf of new
space added to market, the vacancy rate for the core climbed slightly from
6.3% in Q2 2012, to 6.4% in Q3.
Demand in the suburbs dropped off, with 12,941 sf being returned to market.
This edged up the suburban vacancy rate from 10.3% in Q2 2012, to 11.6% in Q3.
On a year-over-year basis the picture is brighter, with the central Q3 rate
for 2011 being at 7.7% (opposed to 6.4% this year), and the suburban Q3 rate
for 2011 at 13.8% (vs. 11.6% this year).
“Winnipeg continues to be a story of growth, however slow, driven by the
manufacturing, financial services, and agriculture, and peripheral
professional services sectors,” says Wayne Sato, Vice President, Office, C&W
Winnipeg. “The office markets here remain very healthy, despite a slower third
Absorption showed some moderate strength in central Toronto over the third
quarter, pushing vacancy down from 4.8%, to 4.6%. In suburban Toronto markets,
vacancy remained flat at 8.9%; however, the GTA West saw some significant
positive absorption. Vacancy remained flat in part because of tenants taking
occupancy of newly completed developments.
“The downtown market continues to see growth, but it’s being driven by a small
number of key transactions,” says Michael Caplice, Senior Managing Director,
Toronto Office Leasing, C&W Canada. “There’s a sense in the marketplace that
demand conditions are beginning to ease, as tenants take a more cautionary
approach to their real estate decisions.”
Ottawa’s central office vacancy rate dipped ever so slightly from 5.8% in Q2
2012, to 5.7% in Q3, with absorption of 6,178 sf. In the suburbs, vacancy
climbed slightly from 8.5% in Q2 2012, to 8.7% in Q3, though absorption was
positive at 28,490 sf. The increase in vacancy can be attributed to the
addition of new space.
“With the federal government yet to begin occupying the Carling Campus, and
the addition of two new downtown developments rising at 90 and 150 Elgin,
Ottawa is likely to see vacancy rates on the rise until government demand
becomes more robust,” says Nathan Smith, Senior Vice President, C&W Ottawa,
While 90 Elgin is a design build for the Federal Government, the space and
building they are rumoured to be relocating from would require significant
work prior to becoming competitive space in the market.
Montreal’s central market experienced positive absorption of 31,514 sf in the
third quarter, though vacancy downtown remained flat at 6.1% from Q2 2012 to
Q3. In the suburbs, vacancy dipped from 10.1% in Q2 2012, to 9.7% in Q3.
Absorption in the suburbs was at 302,464 sf for the quarter, though new supply
of 195,258 sf was added to the market, keeping the drop in suburban vacancy
“As we suspected, pressure from tenants hunting for space has pushed
developers to announce new builds, such as Cadillac’s recent announcement of
the Deloitte Tower – slated for completion in the third quarter of 2015,” says
Bernie Marcotte, Senior Managing Director, C&W Montreal. “The Deloitte Tower
will likely see the development of another node in the downtown market.”
Atlantic Canada: Halifax, Moncton, Fredericton, Saint John
Overall vacancy in Halifax rose from 9.7% in Q2 2012 to 10.3% in Q3. The
largest factor in the increase came from the central market, where there was
49,330 sf of negative absorption and an increase in vacancy from 10.9% in Q2
to 12.0% in Q3. In the suburbs there was modest absorption of 14,128 sf.
“The majority of the vacancy increase is the result of a shuffling of large
government tenants across older buildings and the moves have some timing
lags,” says Bill MacAvoy, Managing Director, C&W Atlantic. “Overall, the
market remains generally flat from an absorption standpoint, with changes
coming predominantly through the addition of new buildings – a trend which
will increase in both size and quantity in the coming quarters, based on
Moncton had a flat quarter with vacancy rates remaining stable at 6.4%. This
represents a decrease of 2.6 percentage points on a year-over-year basis, as
Moncton’s vacancy rate was at 9.0% in Q3 2011.
“The year-over-year figure requires normalization due to a change in market
inventory that is based on a renovation,” says MacAvoy. “Overall, the market
remains healthy, and is awaiting the announcement on a possible downtown arena
and convention centre.”
Fredericton had a good quarter with 5,833 sf of positive absorption – bringing
the vacancy rate down from 5.1% in Q2 2012, to 4.8% in Q3. On a year-over-year
basis, Fredericton’s vacancy rate dipped 0.6 percentage points from 5.4% in Q3
Saint John experienced the biggest increase in vacancy of any Canadian market
in the third quarter this year, at 9.9% - up from 8.2% in Q2. 39,459 sf was
returned to the Saint John market.
“Saint John is feeling the impact of the significant downsizing of a contact
centre this quarter. The market will see vacancy increase again over the
coming two quarters due to a planned downsizing of a tenant, and the
completion of the Justice Centre, creating about another 2% of vacancy.”
St. John’s central office vacancy rate tightened even further from the low
2.5% it was in Q2 2012, to just 2.3% in Q3. However, outside of the core there
was negative absorption of 10,519 sf, bringing the suburban vacancy rate up
from 3.9% in Q2, to 4.5% in Q3. This also had a negative impact on the overall
vacancy (central and suburban combined) – pushing it up from 3.3% in Q2, to
3.5% in Q3. On a year-over-year basis the overall vacancy has remained flat.
It was at 3.5% in Q3 of 2011.
“Rental rates showed no increase for the first time since the third quarter of
2008,” says Susan Morrison, General Manager, C&W Newfoundland. “The market
appears to be leveling now that the engineering project space has been
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For regional analysis:
Toronto Ottawa Montreal
Michael Caplice Nathan Smith Bernie Marcotte
647.282.2434 613.794.0777 514.758.8457
St. Johns Atlantic Canada Vancouver
Susan Morrison Bill MacAvoy Mark Chambers
709.576.3010 902.425.1872 604.640-5803
Calgary Edmonton Winnipeg
Robert MacDougall Shane Asbell Mike Passingham
403.261.1193 780.420.1177 204.770.6959
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