October 4, 2010
CanaData Construction Industry Forecasts Conference
Canadian office-building market proves resilient
The Canadian office market has largely withstood the ravages of global recession, while housing starts will show a moderate decline through 2011, two prominent economic analysts told the annual CanaData conference.
Office occupancy rates are down in major Canadian markets, but a relatively healthy financial services and commodities sector has circumvented a major tenant implosion.
“Canadian markets have been better able to withstand the depths of recession and have outperformed their U.S. counterparts through the last five years,” says Paul Morse, senior managing director and national practice director of office leasing with Cushman & Wakefield.
“However, capital is still interested in this sector, with pension funds in particular, both Canadian and foreign, looking at office buildings as a performer.”
The likelihood of new office projects depends largely on individual markets, he says.
Vancouver has yet to see the critical mass of vacancies required to spur a major new development.
Weakness in Calgary towers can be traced largely to sluggish natural gas markets, which show signs of recovery. The Ottawa market is likewise absorbing excess vacancies, while a stable Montreal market shows signs of some new development.
“In Toronto, the real weakness in the downtown market is in legacy towers, such as the TD Centre, which require major upgrades and carry legacy tax burdens,” says Morse.
An expanding downtown, however, is seeing new office projects with lower gross costs being established from Bathurst Street in the west to the Don River in the east, in large part because young urban professionals prefer to live downtown.
“Office projects with residential development on top will be the new norm for Toronto going forward,” says Morse.
Housing starts, however, will see a slight decline in 2011, as pent-up demand for housing is met this year,” says Peter Norman, Senior Director and General Manager, Altus Group.
“We’ll see a projected 169,000 housing starts in 2011, versus an estimated 181,000 in 2010.”
In Ontario, the impending HST fueled some of the 2010 demand for housing. Despite recent declines in five-year mortgage rates, however, the youth market is “less exuberant” about home ownership, which will lead to a resurgence in the rental market over the short term, Norman says.
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