According to the most recent third-quarter 2008 report on commercial office space by Cushman & Wakefield LePage, Canada’s office vacancy rate remained at its 24-year low of 5.9% for the second consecutive quarter.

Although the volume of office space absorbed during the quarter fell to just under one million square feet — its lowest level since the third quarter of 2006 — the amount of new office space added during the third quarter was also down compared to the second quarter.

This “flattening out” of office-space absorption is consistent with the slowdown in growth of office-based employment, from 3.5% year over year in February 2008 to 0.1% year over year in August 2008.

Another indication of cooling demand for office space can be found in the third-quarter office vacancy rates — they declined in only four of the 12 major metro areas monitored by Cushman & Wakefield LePage. In the second quarter, they fell in 10 of the major metropolitan areas.

Specifically, office-vacancy rates fell from the second to the third quarter in:

• Edmonton – 4.1% to 3.8%;
  
• Toronto – 5.3% to 5.1%;
  
• Saint John – 5.8% to 5.6%;
  
• Winnipeg – 7.2% to 6.9%.
  

At the other end of the vacancy-rate spectrum are Moncton, New Brunswick (10.6%) and Halifax (9.0%). In Montréal, flagging growth of office-based job creation has pushed the vacancy rate higher, to 8.0% from 7.9% in the second quarter.

Looking forward, office-based employment will continue to grow slowly, due in part to the recent sharp deterioration of investor confidence and the effects of the recent tightening of global credit conditions. This slower growth will probably put a lid on construction of office space through 2009 and into 2010.

Indeed, given the fact that commercial building permits have slowed since May, this moderating trend appears to have already started.

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