Rising vacancy rates will likely cause office construction to stall in 2010

home

news index

rising vacancy rates will likely cause office construction to stall in 2010

July 06, 2009 - John Clinkard

Featured in:

Join the Discussion!

Login to post a comment
Share
Print this Page
RSS Feed

While there are signs of economic recovery in several key sectors, commercial office construction is not one of them. This observation is reinforced by Cushman & Wakefield LePage’s latest office statistics which reported that the national office vacancy rate jumped from 6.1% to 7.6% in the second quarter, its largest one quarter increase on record. This increase has been primarily driven by a steady contraction of private sector office-based (OB) employment which started in August of 2008 and has extended into the second quarter of 2009.

Across the country, the vacancy rate in Calgary has increased from 1.0% in 2006 to 10.2%, due to a healthy increase in new supply and a 1.6% year-to-date drop in OB employment.

Strong growth of office-based employment caused the office vacancy rate in Halifax to decline from 9.7% to 9.3% in the second quarter. Nevertheless, its vacancy rate was second only to Calgary.

In Montréal, the combination of a 3% year-to-date decline in OB employment and a 450,000 square footage increase in new supply has, over the past year, caused the metro area’s vacancy rate to move from 7.9% to 8.9%, the third highest in the country.

Despite a very sharp 3% year-to-date drop in private sector OB employment over the past year, the office vacancy rate in Ottawa at 6.6% is the lowest among the eight largest CMAs in the country, in large part due to a solid +4.0% year-to-date increase in public sector employment.

It appears that a combination of increased new supply and lacklustre year-to-date growth of OB employment has pushed Toronto’s office vacancy rate in Q2 to its highest level since early 2007. Given a very large volume of office space currently under construction in the downtown core, plus a further easing in OB employment, Toronto’s vacancy rate will probably move into double digits early in 2010.

Given the recent sharp rise in office vacancy rates, stagnant growth of office-based employment and a 16%
year-to-date decline in commercial building permits, the overall prospects for commercial office construction appear very weak over the next three to five quarters.