Canadian office vacancy rate rises in Q4

Vacancy rates in Canada’s commercial real estate market rose in the fourth quarter but leasing activity is gaining momentum as confidence in the economy returns, a CB Richard Ellis report showed on Thursday.

The overall year-over-year vacancy rate for both downtown and suburban office space climbed to 9.8 percent from 6.7 percent, CBRE said in its fourth-quarter report on national office and industrial trends.

However, the real estate services firm said it is seeing a rise in leasing activity and better access to capital in the quarter helped the sector to show fresh signs of life.

Businesses that had delayed decisions during the worst of the recession are now looking to come back into the market, the report said. This is a positive signal of market confidence heading into the new year, it said, even though this confidence was not reflected in the fourth-quarter vacancy levels.

The Toronto and Calgary markets still face pressures because each city is preparing for a wave of new office space coming on the market through to 2011.

Both will be dependent on their dominant downtown tenants — financial and professional services in Toronto and oil and gas in Calgary — to mark a turnaround.

“Watching the story in Toronto and Calgary is akin to watching a glacier head steadily in your direction. We’re just on the tail end of a construction boom, and at this point the added inventory has to work itself through the market,” said John O’Bryan, vice-chairman at CBRE.

Calgary, Alberta, was the hardest-hit market in the fourth quarter, with vacancies more than doubling to 15.6 percent from 6.3 percent. But lower rents in the new year are expected to pull down the rate in the country’s oil and gas capital.

In Toronto, the vacancy rate rose to 9.4 percent from 6.8 percent. Year-over-year space under construction shrank by more than half to 2.49 million square feet from 6.06 million in the fourth quarter. Supply is likely to outpace demand next year.

Vacancy rates were relatively stable in other Ontario markets such as London, the Waterloo region and Ottawa, rates fluctuating less than 1 percent, year-over-year.

In Vancouver, British Columbia, vacancy rates climbed to 9.1 percent from 6.1 percent.

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