October 7, 2011

Office vacancy rates drop in Canada: Cushman, Wakefield LePage executive

KELLY LAPOINTE

staff writer

Canada is seen as a safe haven, a place to be investing and there is a demand for office and family buildings across the country, says a leading commercial property expert.

Paul Morse, Sr. Vice-President and General Manager and National Practice Director at Cushman & Wakefield LePage, spoke about A Cross-Country Look at Upcoming Commercial Construction in Canada at the 26th annual CanaData Construction Industry Forecasts Conference.

Canadian vacancy rates have decreased and the country is in much better shape than the United States, said Morse. Nationally, this vacancy is a very positive signal for new development and new construction in 2012.

He said suburban trends are very much influenced by U.S. thinking since many of the companies that are in Canadian suburban markets are owned or controlled by U.S. corporations.

Suburban supply has tapered off in the last few years, but urban supply has picked up.

“There’s a renaissance where people want to live and work in a downtown environment,” said Morse.

“People are interested in this change and companies see that.”

For the first time, companies are moving their offices into downtown areas instead of away and into the suburbs.

The biggest example is that Coca Cola, a traditionally suburban company, will be moving into an office space in downtown Toronto.

“In my 30 years in this business, I’ve only seen businesses moving out of downtown,” he said.

He said there is an extraordinary demand for office space and real estate in general.

“Office buildings in particular are seeing stable, secure asset classes that are attracting capital from around the world.”

He said there is a lot of new product that has been coming into the market in the last quarter and that trend is expected to continue into 2012.

“There are loads of companies who are deciding this is a good time to be selling assets. There is an equal number of parties who figure this is a good time to be acquiring those assets. It’s amazing the trades that have been taking place.”

He said teams are being sent in from around the world to explore what’s happening in Canada so they can start to make critical investments.

“It’s pretty tight closed markets, it’s very difficult to make acquisitions. You’re almost having to hold your nose and go for it. It’s very difficult to rationalize and justify some of the decisions you’re being faced with.”

In the industrial market there was a lack of supply in 2010 and 2011 and a lot of the U.S.-based developers that were in Canada had to retreat back into the U.S. and had significant challenges to face.

“But we’ve seen a significant pick-up in (leasing) activity in the last six months.”

Vacancy rates have been going down across the country.

He called Calgary an “extraordinary story”.

“If there’s one city that was at great risk, it was Calgary, and what’s happened here is an extraordinary bounce back in demand,” he said pointing to the last two years.

He said there could be up to six million square feet of new office development in Calgary. A vacancy rate of 12 per cent is nothing unusual in a market like Calgary and Morse said there was a time when it was thought it could be as high as 20 per cent.

He said Montreal, as a city that has a real need for new product, is a tremendous new opportunity with a revitalization of new assets there.

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