Expect Canadian Office Building Construction to Moderate Slightly in 2008
John Clinkard
Although the key indicators of commercial construction for the country as a whole continue to flash green heading into 2008, Reed Construction Data is seeing some signs that the market may have peaked.
For example, growth of office-based employment over the past three months (+3.2%) has slowed compared to the same period in 2006 (+4.3%). According to Cushman & Wakefield LePage, the national office vacancy rate was little changed at 6.4% in third-quarter 2007 and year-over-year growth in asking rents slowed to +6.8% from +16.6% in the second quarter.
Calgary and Edmonton have Tightest Markets in the Country
Although Calgary still has the tightest office market in the country, the addition of over 1.5 million square feet of space in the past year has pushed its vacancy rate up from 1.0% to 2.4%.
Edmonton, with an office vacancy rate of 4.8% and year-to-date office-based employment up by +11.4%, is the second tightest market in the country. With a relatively modest 305,000 square feet of space under construction at mid year, the Edmonton office market appears likely to remain tight well into 2008.
Vancouver has an Acute Space Shortage in Downtown Core
In Vancouver, solid (+6.6%) growth of office-based employment over the past six months has resulted in a healthy net absorption of 527,000 square feet of vacant space. This level of activity pushed the Vancouver census metropolitan area’s (CMA) vacancy rate down to 5.4%, its lowest level since first-quarter 2001.
Looking forward, given its very low vacancy rate, we see evidence of an acute space shortage, particularly in the downtown Vancouver core and strong growth of net asking rents. The outlook for commercial building in Vancouver should remain positive through 2008 and well into 2009.
Toronto Vacancy Rate Lowest in Six Years
Although it has not displayed the same double-digit job growth as Calgary and Edmonton, the office vacancy rate in Toronto is also the lowest it has been in more than six years. Driven by strong job growth in professional, management and information services, the absorption of vacant space is up by a solid 1.8 million square feet.
With little new supply coming on stream in the near term, the office vacancy rate should continue to tighten into 2009, when the addition of approximately 3.5 million square feet of space currently under construction hits the market.
