First Half of 2013 Office Markets Expected to Be Stable with Positive Demand
Conditions Resuming in Latter Half of 2013
U.S. Recovery to Boost Canadian Suburban Markets
TORONTO -- December 19, 2012
While the first half of 2013 is expected to remain stable for office space
demand across the country, positive demand conditions will resume towards the
second half of 2013, according to the 2013 Office Outlook, released by Cushman
& Wakefield (C&W) today.
“A late-2013 central market upturn will be driven by a number of factors,
including sustained low interest rates, the anticipated U.S. economic
recovery, a stabilized euro zone and a slow drop in value of the Canadian
dollar, which will help revitalize manufacturing and export growth,” says
Pierre Bergevin, President and CEO, C&W Canada. “Positive demand conditions
are expected to resume in the latter half of 2013, and some markets are likely
to experience pent-up demand before the new buildings hit the market,
particularly in the tightest cities such as Vancouver, Calgary and Toronto.”
Vancouver, Calgary, Montreal, Ottawa and Toronto are all seeing substantial
new development activity, a phenomenon that extends to St. John’s, NF.
Toronto’s downtown is undergoing yet another hot development cycle, with over
3.5 msf and additional announcements expected in the coming quarters.
With the exception of Calgary, tenants have been migrating from suburban
locations to city centers to access the downtown talent pool, part of a larger
trend towards densification as acquisitions and multiple-location
consolidations become prominent and companies rethink their space in order to
Vancouver office markets were a hotbed of activity through 2012 marked by
slow, steady demand and record-low inventory within some submarkets and asset
classes. British Columbia’s growth prospects will receive a boost in 2013 from
two major projects: the federal government’s $8-billion order (over eight
years) with Vancouver-based Seaspan Marine for seven non-combat ships and the
$3.3-billion modernization of Rio Tinto Alcan’s aluminum smelter in Kitimat.
Ramped-up investment on the projects will contribute to an expected
re-acceleration of growth to 2.7% in 2013, up from an expected 2.3% in 2012.
“We expect downtown Vancouver will see approximately 1.7 msf by the end of
2015 and this space will provide some much needed options for larger tenants,”
says Hendrik Zessel, Senior Managing Director, C&W Vancouver. “While class A
vacancy is expected to reach about 12.4% by the end of 2015, the new
developments are adding an excitement in the market that has not been seen in
more than 20 years.” All classes vacancy will reach just shy of 8%, due to the
tighter conditions in Class B and C markets.
Office demand in Vancouver should gain modest momentum in advance of the
arrival of new developments. Looking forward, it is likely there will be weak
demand over the first half of 2013 and strengthening fundamentals after that.
Key sectors, such as gaming, technology, mining and engineering, will continue
to lead growth.
Overall vacancy in central Calgary as of the third quarter of 2012 was 3.2%,
with downtown premium space at an all time low of 0.6% or, in other words,
non-existent. While demand softened slightly in 2012, absorption spiked with
the arrival and occupancy of H&R’s 1.9-msf Bow Tower, which was fully leased
by Cenovus Energy and Encana Corporation. The lack of substantial new and
available inventory has put a hard cap on absorption. Current developments
will bring relief to beleaguered tenants, but not for another two-and-a-half
to five years.
“As always, Calgary’s fortunes and that of its office market will rise and
fall with the health of the global energy industry,” says Robert MacDougall,
Senior Managing Director, C&W Calgary. “With so many energy projects in the
pipeline, however, any slowdown is likely to be incidental in the big picture.
In this extremely tight office market, very little breathing room will come
from the shuffling of tenants next year. However, Encana’s physical relocation
into The Bow in the fourth quarter of 2012 may bring up to 400,000 sf to
The surprise announcements by Imperial Oil that it will be relocating to the
suburban markets will translate into more than 1.2 msf being displaced
downtown between 2014 and 2016, providing significant opportunities for larger
space users. Although common for engineering and the oil and gas service
sector to locate in peripheral markets such as the Beltline and the suburban
markets, the migration of an oil company into a suburban market is unheard of.
The subsequent announcement of CP’s long-term plan to construct its own office
complex on its suburban site in the south can be viewed as adding credibility
to the concept of suburban markets becoming an increasingly viable alternative
to the core for major corporations and “big oil,” Calgary’s primary industry.
Alberta’s Capital is heavily influenced by the oil and gas sectors and, for
the central office markets, by the space needs of the federal, provincial and
local governments. Alberta’s economy continues to lead the pack in Canada and
solid growth will continue, though taper off somewhat in 2013.
“Edmonton had 558,000 sf. of positive absorption in 2011 and our forecasted
estimate for 2012 is to be approximately 400,000 sf,” says Shane Asbell,
Partner, Office Leasing & Sales, C&W Edmonton. “Demand for office space is
strong as the engineering and construction sectors are expanding rapidly.
Furthermore, all three levels of government are back in the market looking for
space, particularly the City of Edmonton, with an RFP out to downtown
developers for up to 450,000 sf of space.”
The most significant leasing transaction in 2012 was related to the huge
expansion completed by Enbridge. The energy leader leased an additional
240,000 sf in four separate buildings in the downtown class A market,
significantly reducing competitive space in this asset class and driving some
positive momentum in rental rates. Although citywide absorption totalled
61,570 sf, new inventory caused vacancy to nudge upward slightly from 9.9% to
Reflecting the city’s healthy and growing economic fundamentals, net asking
rents will continue to move upwards, especially in the Financial Core. With
the Enbridge expansion in the downtown market and the new First and Jasper
development (the former EPCOR building) recently leasing its remaining 96,000
sf to Jacobs Engineering, most of the vacant space created from the opening of
the new EPCOR Tower has been filled. Given the low vacancy, the number of
large contiguous pockets of space has tightened. As a result, demand for
suburban office space, where rental rates are rising at a slower pace, may
increase for larger office requirements.
Leasing activity was active across 2012 with some expansionary growth in
central Winnipeg that pushed overall vacancy down to 6.4% from 7.7% one year
CentreVenture Development Corporation is working with the City of Winnipeg,
the Province of Manitoba and other parties to invest in and revitalize the
downtown central business district (CBD). “Downtown Winnipeg is undergoing
major transformation and revitalization that is already bringing new life to
the area and will have a major impact on the city's long-term business and
office growth,” says Brett Ferguson, Managing Director, C&W Winnipeg. “The
continued revitalization of Winnipeg’s downtown is welcomed by business and
residents alike and is expected to drive increasingly stronger office demand.”
Office development activity is significant in both central and suburban
markets that will push vacancy rates up slightly in Winnipeg’s central and
suburban markets, but continued modest expansionary demand in both central and
suburban markets will keep them at a reasonable level. In response to new
development within the CBD and the potential addition of a couple of
government office buildings transitioning to the marketplace, vacancy in
central Winnipeg will rise to around 7.6% by end of 2014 and is expected to
peak around 8.1% later in that year.
Downtown Toronto’s office market performance has been a shining light in North
America. Demand was strongest in late 2010 and through 2011, easing somewhat
in 2012, dragged down by persistent global economic uncertainty. Although some
tenants have returned space to the market and decisions are taking longer,
about 190,000 sf of positive absorption took place in the third quarter of
2012, representing still an above-average performance.
About 3.9 msf of new office space is slated to further transform Toronto’s
skyline between 2014 and 2017. Until the latter half of 2014 when the first
two developments bring relief, the market will remain very tight and
additional rate increases are inevitable in what’s become a landlord¹s market.
“The migration of tenants into the downtown market from midtown and suburban
markets will create demand in downtown Toronto as companies continue to move
closer to concentrated, educated workforce pools,” says Michael Caplice,
Senior Managing Director, Office Leasing, C&W. “However, suburban markets will
continue to be held back by weak economic conditions and are likely to
experience weak overall demand through the first half of 2013.”
As the U.S. turns around its economy later in the year, suburban demand should
be given a significant boost. The key factors limiting growth are a continued
cycle of densification and the consolidation of multiple-location operations.
Sectors driving growth will continue to include engineering, healthcare,
pharmaceutical, insurance, technology and professional services.
The health of Ottawa’s office market is closely tied to demand growth from the
federal government. Since the government is in cost-containment mode, demand
for office space was weak through most of 2012. While vacancy increased
slightly in the past two years, downtown Ottawa remained relatively tight with
a central area vacancy rate of only 5.7%. The Capital’s vacancy is
historically one of the most stable in the country with very little volatility
in rental rates.
“The federal government will continue to address its aging stock of buildings
over the coming years and this will continue to create demand for space as
tenancies relocate into longer-term swing space in order to buy time until
major retrofits are completed,” says Alain Desmarais, Senior Managing
Director, C&W Ottawa. “For instance, the Bank of Canada recently leased the
majority of the space at the former EDC building, but the space it vacated at
234 Wellington is owned by the federal government and will not be re-occupied
by the Bank before a major retrofit has been completed.”
Ottawa’s overall vacancy rate is expected to rise to 6.7% (all classes) and
7.9% for class A by the second quarter of 2014. Rental rates will remain
stable in downtown and suburban markets. Ottawa will see modest demand from
non-government business drivers and this will gain some momentum into 2014.
The market will remain relatively balanced, although some additional softening
may occur as the government begins to occupy the Carling Campus. Space
returning to market will be partially offset by moderate demand anticipated to
come from the public sector as the aging space challenges are addressed.
Montreal is seeing its first significant non-subsidized office development go
up in over 20 years. That’s big news for this vibrant city and its downtown
office market, which has been quiet for many years.
While demand eased in 2012, companies continued to grow and the market
tightened. Kevric’s Altoria started a 35-storey mixed-use building that
includes 10 floors or 240,000 sf of office space. Moreover, Cadillac Fairview
came forward with a huge vote of confidence in the market with its 2012
announcement that it would build a 520,000 sf LEED Platinum tower, with
Deloitte as the lead tenant (The Deloitte Tower). Canderel plans to build two
office towers totaling over one million sf adjacent to the Complex Desjardins
and Ivanhoé Cambridge has announced that it will build a 100,000 sf office
tower completely on speculative basis in Laval.
Now sitting at near historic low office vacancy rates, there is a sense that
business optimism has regained a strong foothold and that a cycle of
expansionary growth has begun. In the near term, Montreal’s downtown
revitalization is being fuelled by a growing condominium sector that has
attracted a diversified and educated workforce.
“While the first half of 2013 may see some easing of expansionary demand as
companies grapple with global economic uncertainty, growth is expected to
resume in Montreal’s downtown and suburban markets in the latter half of 2013
and into 2014. Vacancy rates in downtown Montreal will edge upward with the
coming of the Kevric tower, rising to about 6.4%, and will increase further
with the introduction of the Deloitte tower, reaching about 7% by mid-2015,”
says Bernie Marcotte, Senior Managing Director, C&W Montreal.
With one of the highest office vacancy rates in Canada, London appears to be
turning a corner as all local organic absorption is consuming historically
stubborn vacancy. A number of major tenants took occupancy in 2012, bringing
overall downtown availability to 15.8%, the lowest it’s been in over 10 years.
Outside of the downtown area, the coming year is expected to see more approved
lands for office construction in the suburbs.
“The vast majority of new suburban projects for 2011-2012 were build-to-suits
for the medical sector, but this may begin to change,” says George Kerhoulas,
Vice-President and Sales Representative, C&W London. “London’s history of
protecting the downtown office market at the expense of suburban growth may be
Cushman & Wakefield projects downtown A vacancies of just over 9% in 2012 to
dip below this already historically low number to 8.8%. Overall, downtown’s
2012 rate of 15.9% should also decline marginally. Should the City elect to
build a new City Hall in 2013, its eventual completion in two or three years
will have an effect on the B market in London, which will continue to struggle
in 2013. Until then, slow but noticeable absorption and some higher rents are
expected through 2013.
The Waterloo region has seen a tremendous increase in technology start-ups,
international tech companies and innovation in the last few years. The City of
Waterloo continues to benefit from a large presence of traditional employers
and consistently has the lowest vacancy in the region at 6.3%. The Waterloo
suburban market is still considered stable with a vacancy rate of 10.6%, but
faces uncertainty as larger transactions have slowed.
“Waterloo’s office market remains slow and steady,” says Michael Polzl,
President and Broker of Record, C&W Waterloo Region. “The dominant presence of
large technological companies bodes well for the market, but the suburbs may
be challenged as RIM occupies substantial suburban office space and its
occupancy needs remain unknown as it continues to find its way in an intensely
In Kitchener, vacancy in the core market was at a high 20.6% in Q3 2012.
Cambridge has experienced persistently high vacancy at 30% in the Downtown
Core and 18.5% in the suburban market.
Atlantic Canada: Halifax, Moncton, Fredericton, Saint John and St. John’s
Overall office demand in Halifax was weak in 2012, characterized by rising
vacancy rates. With new developments being built in central Halifax, older
properties will be under greater pressure to renovate and retrofit in order to
compete. Halifax’s office market is likely to remain stable from a demand
perspective through 2013, though suburban markets will see the bulk of
relocating tenants until construction projects are completed and new product
is added to the downtown market.
“2013 will be a transition year as the market brings on 400,000 sf, without
significant immediate net new absorption,” says Bill MacAvoy, Managing
Director, C&W Atlantic. “In the longer term, projects relating to the
execution of the shipbuilding award will begin to have a positive impact on
the overall economy, which we expect will lead to modest expansionary demand
growth in the office sector.”
Activity in Moncton’s office market remains brisk, with modest absorption in
2012 reflecting positive growth. Although the opening of the new justice
building had a significant impact on the market in 2012, it has quietly
normalized and is expected to remain neutral or see some slow growth in 2013.
Rental rates are expected to remain flat through 2014, as they have for more
than three years. The preference for quality space by tenants will continue
and space will become increasingly compressed as business pursues more
efficient collaborative workspace strategies that increase density and reduce
Even with the addition of a new Knowledge Park building, overall vacancy in
Fredericton was still tight at 4.8% as of Q3 2012, and the city posted the
highest net-asking rents in the province, averaging $13.98 psf. However,
Fredericton will likely face challenges in 2013 when provincial finances are
reviewed—which could result in downsizing and consolidation in this
In Saint John, within the last 90 days the office market posted the highest
vacancy rates in the country, at nearly 20%, as a result of the closure of
contact centre space and justice-related tenants relocating from third-party
space to a new provincial government building. This situation will remain for
the short term, until such time as assets or spaces are repurposed, which is
likely, or replacement occupiers take advantage of the beneficial pricing.
Over the longer term, the market is expected to move back to equilibrium, due
to three factors: an accelerating U.S. recovery, possible route changes to the
XL pipeline that would redirect it from west to east rather than Alberta to
the U.S., and spin-off business potential presented by the $25-billion dollar
shipbuilding contract won by Irving Shipbuilding in Halifax.
As Newfoundland and Labrador is in the midst of an unprecedented
energy-related boom, it comes as no surprise that the St. John’s office market
is also experiencing a period of healthy growth. Small and vibrant, it is now
one of the tightest markets in the country with a central area vacancy of
2.3%. Rental rates, which had increased every quarter since Q3 2008, flattened
in Q3 2012.
However, demand has remained healthy and St. John’s is now experiencing the
most active development period since the mid-1980s. Five new office buildings
are under construction that will add 546,000 sf to the city’s inventory. Over
370,000 sf of that will rise downtown, split between the office towers at 351
Water Street and Fortis Place, which are scheduled to arrive in late 2013 and
early 2014 respectively. The completion of new projects will likely bring
rising vacancy rates as they come to market. However, modest to moderate
office growth is expected for this lively market in 2013, which will be
spurred on by support services such as professional, financial, accounting and
To obtain a full copy of the report visit www.cushwake.com or to arrange to
speak with a Cushman & Wakefield expert, please contact Odette Coleman,
Mansfield Communications at 416-599-0024 ext. 231 or Odette@mcipr.com
About Cushman & Wakefield
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firm. Founded in 1917, it has 234 offices in 61 countries and more than 13,000
employees. The firm represents a diverse customer base ranging from small
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