Market hot for office towers
By Allison Lampert, The Gazette June 18, 2012
MONTREAL - Canada’s hot condo market might generate the most headlines, but it isn’t the country’s only booming real estate sector.
A decline in downtown office vacancy rates in major Canadian cities is fuelling demand for “building activity not seen since the early 1990s,” a report published Monday by Cushman & Wakefield Canada said.
“It’s not just this quarter but it’s starting to add up,” said Scott Chandler, Cushman’s executive managing director, valuation and advisory services. “A lot of projects are starting to be announced.”
Close to 10 million square feet of new office space has been announced and is under construction in Calgary, Toronto and Vancouver alone to meet demand generated by economic growth, along with tenants’ desire for modern buildings with Leadership in Energy and Environmental Design certification, Cushman & Wakefield said.
Calgary remains the tightest downtown office market in the country with a 3.1 per cent downtown vacancy rate, and plans for the construction of 3.7 million square feet of new space.
Nationally, between the first and second quarters of 2012, the central market office vacancy rate fell from 5.4 per cent to five per cent – a low hit only once since 1985. Between the first and second quarters of 2012, Montreal’s downtown vacancy rate dipped from 6.4 per cent to 6.1 per cent.
In Montreal, where the first privately-backed downtown office space in two decades is now under construction in a mixed-use project, developers are coming under pressure for new buildings from a handful of major tenants, the Cushman report said.
“We expect this pressure will have developers considering the development of some new office towers
,” said Bernie Marcotte, the new senior managing director of C&W Montreal.
Unlike in the United States, where a number of developers – including Quebec pension fund manager Ivanhoe Cambridge Group – are financing the building of new towers on a speculative basis, most new Canadian construction will have signed anchor tenants.
Canadian lenders and developers are simply more prudent, Chandler said.
“Today they are very solid. They are all pre-leased.”
But while development in Calgary is fuelled by economic demand stemming from the oil boom, the frenzy in some markets might be short lived if development is not backed by genuine growth, said Brett Miller, president of real estate services firm Jones Lang LaSalle’s Canadian operations.
“We can be cautiously optimistic about the state of the office market,” Miller said. “In the short term, we’re straying to the positive versus economic development.
“If we don’t see strong economic growth some of this development will slow down.”