The Gale at Godrej Park World Hinjewadi Pune Brochure.pdf
Cushman & Wakefield 2013 Canadian Office Outlook
1. OUTLOOK 2013
THE CHANGING LANDSCAPE
OF CANADA’SResearch Publication
A Cushman & Wakefield COMMERCIAL
REAL ESTATE MARKETS
A Cushman & Wakefield Research Publication
2 National 14 Ottawa
4 Vancouver 16 Montreal
5 Calgary 18 Saint John
7 Edmonton 19 Moncton
8 Winnipeg 20 Fredericton
10 London 21 Halifax
11 Waterloo 22 St John’s
12 Toronto 23 Contact
2. OUTLOOK 2013
A Cushman & Wakefield Research Publication
NATIONAL: MARKETS AT A GLANCE
stable in 2013, better OFFICE
times ahead Central Area
Inventory:
Q3 2012: 265.5 million sf
OFFICE
Q4 2013: 266.8 million sf
Global office market demand was hit with a one two punch after
-
Vacancy Rate Outlook:
the recession of 2008, but not so for Canada¹s central markets.
Q3 2012: 5.1%
In fact, most major markets saw unprecedented expansionary
Q4 2013: 5.3%
demand growth beginning in the summer of 2009, particularly
in downtown Toronto, which posted record absorption levels. Rental Rate Outlook:
Growth was boosted by recovering resource prices, a buoyant
engineering sector and healthy banking and professional services Suburban
sectors — and fueled by low interest rates. Inventory:
Q3 2012: 197.2 million sf
At the same time, more Canadians bought in to the idea of Q4 2013: 201.1 million sf
downtown living and businesses responded by moving closer
to the growing pools of educated workers. The consequence is Vacancy Rate Outlook:
that Canada¹s overall central office vacancy nosedived to one Q3 2012: 9.8%
of the lowest points in the past 30 years — 5.1%, with class A Q4 2013: 10.4%
Rental Rate Outlook:
Resilient demand and rising rental rates have
driven one of the most robust development cycles
CENTRAL AREA
in Canada’s top office markets since the late 1980s. OFFICE
8,000 12%
vacancy at 4.2% (as of Q3 2012). In some cases, tenants migrating 6,000 9%
Absorption (sf, thousands)
from suburban locations have shown a willingness to increase 4,000 6%
occupancy costs to be where the action is and gain access to
Vacancy rate
2,000 3%
the downtown talent pool. Attracting and retaining a productive 0 0%
workforce is a priority for business today and this is driving
(2,000)
greater investment in central market real estate in some cities.
(4,000)
But there are always exceptions. In Calgary, both Imperial Oil (6,000)
00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
and Canadian Pacific recently announced plans to relocate out
of the downtown market to suburban locations, as part of what ABSORPTION OVERALL VACANCY RATE
appears to be cost-cutting strategies. Whether other companies
will follow is uncertain, but the relocations will bring relief to the since the late 1980s, even as global economic uncertainty
space squeeze in downtown Calgary market over the longer run. continued to weigh down office markets around the world. Even
though demand appears to be easing, the U.S. is poised for a more
The popularity of new office buildings and the opportunity
robust recovery to take hold in the latter half of 2013 and into
they present to create employee-driven workplaces remains a
2014. This should boost Canadian markets, particularly suburban
motivating force behind decisions to relocate. Acquisitions and
markets, where activity is more closely tied to the U.S.
multiple-location consolidations are additional trends that are
allowing tenants to densify and rethink their space in order to After over two decades of little construction, Vancouver¹s
increase productivity. downtown is about to see more than 1.7 million square feet
(msf) of new developments rise, which includes the 465,000-(sf)
Resilient demand and rising rental rates have driven one of the
Telus Garden Tower. Calgary, Montreal, Ottawa and Toronto are
most robust development cycles in Canada’s top office markets
all seeing substantial new development activity, a phenomenon
2
3. OUTLOOK 2013
A Cushman & Wakefield Research Publication
Central Area - Projected New Developments 2013-2016 - sf (millions)
Vancouver
Calgary
Winnipeg
Toronto
Ottawa
Montreal
Halifax
St. John’s
0 1 2 3 4 5 6
that extends to St. John¹s, NL, where over 545,000 sf is going growth, but as confidence is restored demand will once again
up, of which 370,000 sf is within the downtown area. Toronto¹s shift into expansionary territory in the latter half of 2013 and into
downtown is undergoing yet another hot development cycle, with 2014. Very tight demand conditions will put upward pressure on
over 3.5 msf announced and additional announcements expected rental rates over the near term, a situation that will only change
in the coming quarters. when enough tenants have relocated into new towers, leaving
behind competitive space within older buildings.
OUTLOOK Very constrained development activity has held overall vacancy
Canadian markets are not only well-positioned to weather softer rates fairly tight across suburban markets and this means that
demand conditions over the first half of 2013, but tenants will once they experience a more sustained level of expansionary
welcome the slowdown, which will mean more modest increases growth, upward pressure on rental rates will likely follow shortly
in rental rates in the near term. While markets will remain after. Canada¹s suburban markets should grow more or less in
extraordinarily tight, most will not see any significant central step with the U.S. recovery.
market additions to new supply until 2014 through 2016. Positive
demand conditions are expected to resume in the latter half of
2013, and some markets are likely to experience pent-up demand
before the new buildings hit the market, particularly in the tightest
cities such as Vancouver, Calgary and Toronto.
The popularity of new office buildings and the
opportunity they present to create employee-
driven workplaces remains a motivating force
behind decisions to relocate
A late-2013 central market upturn will be driven by a number of
factors, including sustained low interest rates, the anticipated
U.S. economic recovery, a stabilized euro zone and a slow
drop in value of the Canadian dollar, which will help revitalize
manufacturing and export growth. In markets such as Vancouver
and Toronto, central growth will continue to come from tenants
who see advantages to being located in downtown markets over
suburban locations.
Central demand over 2013 will begin at very nominal levels as
companies focus more on cost containment than future revenue
3
4. OUTLOOK 2013
A Cushman & Wakefield Research Publication
VANCOUVER: MARKETS AT A GLANCE
strong development cycle OFFICE
Central Area
Economic Outlook Inventory:
Q3 2012: 30.9 million sf
According to RBC Economics¹ Provincial Forecast, British
Q4 2013: 31.0 million sf
Columbia¹s growth prospects will receive a boost in 2013 from
two major projects: the federal government¹s $8-billion order Vacancy Rate Outlook:
(over eight years) with Vancouver-based Seaspan Marine for seven Q3 2012: 4.1%
non-combat ships and the $3.3-billion modernization of Rio Tinto Q4 2013: 3.6%
Alcan¹s aluminum smelter in Kitimat. Ramped-up investment on
Rental Rate Outlook:
the projects will contribute to an expected re-acceleration of
growth to 2.7% in 2013, up from an expected 2.3% in 2012. Suburban
Inventory:
Overview Q3 2012: 21.4 million sf
Q4 2013: 22.2 million sf
Vancouver office markets continued to be a hotbed of activity
through 2012 marked by slow, steady demand and record-low Vacancy Rate Outlook:
vacancy within some submarkets and asset classes. This of course Q3 2012: 12.0%
has propelled the most significant office development cycle to be Q4 2013: 14.6%
seen in Vancouver in 20 years.
Rental Rate Outlook:
With the softening of resource prices in the latter half of the
year and because premium space has all but run out, there was
some softening in demand in central markets. However, overall
CENTRAL AREA
OFFICE
vacancy tightened through the year, falling to 7.3% by the third
quarter of 2012.
1,500 15%
In the red-hot central market, overall vacancy dipped to 4.1%,
1,000 10%
with class A at a low of 2.8%. While demand remained slow but
Absorption (sf, thousands)
positive in the central markets, this was not the case in suburban
Vacancy rate
500 5%
markets, where several new tenants entered the picture, driving
new construction and inventory growth. 0 0%
There are nine properties currently under construction in central (500)
Vancouver and another 11 in the suburban market, with the total
(1,000)
amount of new inventory coming on stream remaining balanced 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
between the markets, at 52% and 48% respectively. Many of these ABSORPTION OVERALL VACANCY RATE
projects have prelease commitments in place, which makes it
difficult to predict how new inventory will affect future occupancy OUTLOOK
rates and, therefore, lease rates. Given the current state of the
office leasing market, we expect that it will slowly stabilize within As we move through the latter half of 2013 and into 2014, with
the next few years. the anticipated recovery in the U.S. economy and more stable
global economic conditions — particularly in Asia — office demand
Downtown Vancouver will see about 1.7 msf rise between mid- in Vancouver should gain modest momentum in advance of the
2014 and the end of 2015. This will provide much-needed relief for arrival of the new developments. Looking forward, we are likely
larger tenants. While central area class A vacancy is expected to to see weak demand over the first half of 2013 and strengthening
reach about 12.4% at its peak in 2015, the new developments are fundamentals after that. Key sectors, such as gaming, technology,
adding an excitement in the market that has not been seen in more mining and engineering, will continue to lead growth.
than 20 years. All classes vacancy will reach just shy of 8% vacancy,
due to the tighter conditions in Class B and C markets.
4
5. OUTLOOK 2013
A Cushman & Wakefield Research Publication
CALGARY: MARKETS AT A GLANCE
low vacancy drives OFFICE
new build cycle Central Area
Inventory:
Q3 2012: 45.3 million sf
Economic Outlook Q4 2013: 45.9 million sf
A great deal of economic uncertainty was lifted with the approval
Vacancy Rate Outlook:
of the China National Offshore Oil Corporation’s $15.1-billion
Q3 2012: 3.2%
acquisition of Nexen and Petronas’s $6-billion acquisition of
Q4 2013: 3.8%
Progress Energy Resources. These massive deals sent a signal
that the federal government is not closed to foreign investment Rental Rate Outlook:
in the energy sector despite tough restrictions, which lessens
Canada’s reliance on exporting heavy oil to the U.S. This also Suburban
demonstrates that both Canada and the investors understand the Inventory:
economic importance of developing and delivering heavy oil to Q3 2012: 16.1 million sf
Asian markets. Q4 2013: 16.8 million sf
Additionally, $61 billion has recently been poured into exploration Vacancy Rate Outlook:
and development outside of the oil sands, which should continue Q3 2012: 11.3%
to drive investment in Liquefied Natural Gas, light oil, shale oil Q4 2013: 10.3%
and shale gas. This suggests that Canada will continue to entertain Rental Rate Outlook:
measured state-owned enterprise investment in these energy
sector areas in the near future.
Assuming that greater global stability is achieved, Alberta will CENTRAL AREA
OFFICE
continue to be the envy of the country in 2013, with a stable
unemployment rate in the 4% range and annual GDP growth in 4,000 12%
the order of 3.5% to 3.8%.
3,000 9%
Absorption (sf, thousands)
2,000 6%
Vacancy rate
As always, Calgary’s fortunes and that of its office 1,000 3%
market will rise and fall with the health of the 0 0%
global energy industry. With so many projects in (1,000)
the pipeline, however, any slowdown is likely to be (2,000)
00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
incidental in the big picture.
ABSORPTION OVERALL VACANCY RATE
Overview demand strength in 2011 averaged 717,000 sf per quarter — or
2.86 msf for the year.
Acquisitions, mergers and buyouts may be an accelerated
driving force in Calgary’s office markets in 2013, with significant While demand softened slightly in 2012, absorption spiked with
takeovers in the gas sectors expected as companies position the arrival and occupancy of H&R’s 1.9-msf Bow tower, which was
themselves in advance of a potential price rebound. fully leased by Cenovus Energy and Encana Corporation. The lack
of substantial new and available inventory has put a hard cap on
Overall vacancy in central Calgary as of the third quarter of 2012 absorption. Current developments will bring relief to beleaguered
was 3.2%, with downtown premium space scraping the bottom of tenants, but that won’t happen for two-and-a-half to five years.
the barrel at 0.6% or, in other words, non-existent. The dynamic Softening demand was attributable to weakening oil prices due
downtown market’s all classes absorption has averaged 207,000 to the global slowdown. At the same time, there was a notable
sf per quarter, or 828,000 sf per year since 2000. Remarkably, increase in sublet space returned by the gas-weighted sector
5
6. OUTLOOK 2013
A Cushman & Wakefield Research Publication
feeling the effects of a persistently weak gas market. As well,
the sense of urgency to complete transactions also eased, as did
competition for larger blocks of space.
Four major office towers are currently in the works that could
bring in excess of 1.7 msf to market. Eighth Avenue Place West will
add about 840,000 sf to market and is fully preleased and Cadillac
Fairview is aggressively marketing its 820,000-sf tower. Also in
pursuit of a new development is Oxford Properties. Although not
announced, Oxford is working hard to secure enough tenants
to start construction on its 615,000-sf complex. Brookfield
is also at the table, albeit for a late 2016 or early 2017
completion, to develop Western Canada’s tallest office tower
at 60 floors or 1.4 msf.
outlook
As always, Calgary’s fortunes and that of its office market will
rise and fall with the health of the global energy industry. With
so many projects in the pipeline, however, any slowdown is likely
to be incidental in the big picture. In this suffocatingly tight office
market, very little breathing room will come from the shuffling of
market players next year. However, Encana’s physical relocation
into The Bow in the fourth quarter of 2012 may bring up to
400,000 sf to market.
Looking forward, the surprise announcements by Imperial Oil that
it will be relocating to the suburban markets will translate into
more than 1.2 msf being displaced downtown between 2014 and
2016, providing significant opportunities for larger space users.
Although common for engineering and the oil and gas service
sector to locate in peripheral markets such as the Beltline and
the suburban markets, the migration of an oil company into a
suburban market is unheard of. The subsequent announcement
of CP’s long-term plan to construct its own office complex on
its suburban site in the south can be viewed as adding credibility
to the concept of suburban markets becoming an increasingly
viable alternative to the core for major corporations and “big oil,”
Calgary’s primary industry.
6
7. OUTLOOK 2013
A Cushman & Wakefield Research Publication
EDMONTON: MARKETS AT A GLANCE
rents moving up OFFICE
Central Area
economic outlook Inventory:
Q3 2012: 15.6 million sf
Alberta’s Capital is heavily influenced by the oil and gas sectors
Q4 2013: 15.6 million sf
and, for the central office markets, by the space needs of the
federal, provincial and local governments. Alberta¹s economy Vacancy Rate Outlook:
continues to lead the pack in Canada and solid growth will Q3 2012: 7.4%
continue, though it will taper off somewhat in 2013. Still, Q4 2013: 6.9%
unemployment will remain stable around 4% and GDP growth
Rental Rate Outlook:
should be in the range of 3.5% to 3.8%.
Suburban
Overview Inventory:
With absorption expected to reach 400,000 in 2012, Edmonton’s Q3 2012: 9.9 million sf
Q4 2013: 10.4 million sf
office market is set to chalk up its second strong year in a row.
In 2011, absorption was 558,000 sf. And there’s no sign of let up. Vacancy Rate Outlook:
The engineering and construction sectors are expanding rapidly Q3 2012: 14.1%
and all levels of government are back in the market looking for Q4 2013: 14.8%
space, particularly the City, which has an RFP out to downtown
developers for up to 450,000 sf. Rental Rate Outlook:
The most significant leasing transaction in 2012 was the huge
expansion completed by Enbridge. The energy leader leased an
CENTRAL AREA
OFFICE
additional 240,000 sf in four separate buildings in the downtown
class A market, significantly reducing competitive space in this asset
300 10%
class and driving some positive momentum in rental rates.
200
In the third quarter of 2012, vacancy in Edmonton¹s central office
Absorption (sf, thousands)
5%
100
market, made up of the Financial Core and Government District,
Vacancy rate
stood at 7.4%. Although the suburban market saw positive 0 0%
absorption of almost 50,000 sf, vacancy increased slightly to (100)
14.1%, due to 95,000 sf of new inventory added to the market.
(200)
From a new development perspective, the 55,000-sf Cash Store
(300)
Financial Building opened on 156th Street and Yellowhead Trail, 08 09 10 11 12F 13F
moving Cash Store out of West Gate Business Park. In addition, ABSORPTION OVERALL VACANCY RATE
a new 40,000-sf building at Westlink Park will house Golder
Associates who moved from Mayfield Business Centre. Although Outlook
citywide absorption totaled 61,570 sf, this new inventory caused
vacancy to nudge upward slightly from 9.9% to 10.0%. Reflecting the city¹s healthy and growing economic fundamentals,
net asking rents will continue to move upwards, especially in the
The class B product in the Financial Core experienced the most Financial Core. With the Enbridge expansion in the downtown
change in Edmonton with positive absorption in the third quarter market and the First and Jasper redevelopment (the former
of close to 100,700 sf. Most of this absorption occurred in the First EPCOR building) recently leasing its remaining 96,000 sf to Jacobs
and Jasper redevelopment site in which Jacobs Engineering leased Engineering, most of the vacant space created from the opening
out the remaining 96,000 sf left behind in the building when EPCOR of the new EPCOR Tower has been filled. Given the low vacancy,
relocated to the new EPCOR Tower. Jacobs will displace similar the number of large contiguous pockets of space has tightened. As
space when it relocates, however, bringing a significant amount of a result, demand for suburban office space, where rental rates are
class B space back to market within the Government District. rising at a slower pace, may increase for larger office requirements.
7
8. OUTLOOK 2013
A Cushman & Wakefield Research Publication
WINNIPEG: MARKETS AT A GLANCE
LOTS OF ACTION OFFICE
Central Area
Economic outlook Inventory:
Q3 2012: 10.1 million sf
Western Canada will set the economic pace in this country this
Q4 2013: 10.3 million sf
year and next, benefiting the most from booming activity related
to commodities and strong gains in agricultural sectors. Overall Vacancy Rate Outlook:
growth in Manitoba in 2013 will see a growing contribution from Q3 2012: 6.4%
manufacturing. Further expected strengthening in construction Q4 2013: 7.6%
spending will provide additional support for growth. The net
Rental Rate Outlook:
effect of these factors will be growth remaining little changed at
3.2% in 2013. Source: RBC Research Provincial Outlook Suburban
Inventory:
Overview Q3 2012: 3.2 million sf
Q4 2013: 3.5 million sf
Leasing activity was active across 2012 with some expansionary
growth in central Winnipeg that pushed overall vacancy down Vacancy Rate Outlook:
to 6.4% from 7.7% one year ago. As in other sectors of the Q3 2012: 11.6%
country, attracting and retaining staff is on the minds of Winnipeg Q4 2013: 15.4%
businesses, and to this end, there is a strong interest in new or
updated quality space and location. Rental Rate Outlook:
Downtown Winnipeg is undergoing a major CENTRAL AREA
OFFICE
revitalization program that is already transforming
the area and will have a significant impact on the 800 10%
city’s long-term business and office growth. 600 8%
Absorption (sf, thousands)
Vacancy rate
400 5%
Densification and consolidation of multiple-premises operations
200 3%
has offset some of the expansionary growth in Winnipeg, as
tenants focus on cost containment and improving productivity. 0 0%
Many occupiers are willing to relocate, but are looking for
(200)
new build-out incentives in order to densify and develop more 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
collaborative workplace environments. ABSORPTION OVERALL VACANCY RATE
Downtown Winnipeg is undergoing a major revitalization program
that is already transforming the area and will have a significant situated on a nearby surface parking lot owned by Manitoba Public
impact on the city’s long-term business and office growth. Insurance Corp.
CentreVenture Development Corporation is working with the
Office development activity is significant in both central and
city, the province and other parties to invest in and revitalize the
suburban markets, with about 300,000 sf of new developments
downtown area. This $600-million multi-faceted program includes
currently being built in downtown Winnipeg, and almost 320,000
the new sports, hospitality and entertainment district (SHED),
sf under construction within suburban markets.
encompassing an 11-block area downtown.
The 200,000-sf Centrepoint mixed-use tower (retail, office, hotel, Outlook
condo) to be completed in the third quarter of 2014 is the first
The new office developments will push vacancy rates up slightly in
significant new project under construction within the SHED and
Winnipeg¹s central and suburban markets, but continued modest
conceptual planning is being prepared for a second project to be
8
9. OUTLOOK 2013
A Cushman & Wakefield Research Publication
expansionary demand in both central and suburban markets will
keep them at a reasonable level. Vacancy in central Winnipeg
will rise to around 7.6% by end of 2013 and is expected to peak
around 8.1% later in 2014.
Suburban vacancy, which currently stands at 11.6%, will rise
to 15.4% by the end of 2013, due to the 317,000 sf of new
developments coming to market and as a result of the movement
of tenants to the downtown market. As we progress through
2014, vacancy will begin to decline, based on modest to moderate
absorption assumptions.
Tenants will continue to see best value and prime location as key
to attracting and retaining a talented workforce. The continued
revitalization of Winnipeg¹s downtown, an initiative welcomed
by business and residents alike is expected to drive increasingly
stronger office demand.
Rental rate pressure should continue to inch upwards in both
central and suburban markets due to tight markets, new
development and continued modest expansionary demand.
9
10. OUTLOOK 2013
A Cushman & Wakefield Research Publication
LONDON: MARKETS AT A GLANCE
Turning a corner OFFICE
Central Area
Office Inventory:
Q3 2012: 3.9 million sf
London, with one of the highest office vacancy rates in Canada,
Q4 2013: 3.9 million sf
appears to be turning the corner as all local organic absorption
is consuming historically stubborn vacancy. A number of major Vacancy Rate Outlook:
tenants took occupancy in 2012, bringing overall downtown Q3 2012: 15.9%
availability to 15.8%, the lowest it’s been in over 10 years. Q4 2013: 15.8%
In 2013, the office market in London will again be supported by Rental Rate Outlook:
large occupiers such at TD Canada Trust, London Life, Canada
Suburban
Life, Bell, Citibank and the City of London. Any flux in these local
user strategies would have a profound effect on recent gains. With the former Galleria Mall (now CitiPlaza) firmly entrenched
Inventory:
The coming year will also see more approved lands for office asQ3 2012: facility, and suburban Westmount Mall evolving in the
an office n/a
construction in the suburbs. The vast majority of new suburban same2013:
Q4 direction, it may be some time before a major new non-
n/a
projects in 2011-2012 were build-to-suits for the medical sector, medical office project will be seen in London. These retrofits
Vacancy Rate Outlook:
but this may begin to change. London’s history of protecting the depressed larger floorplate rates and construction for many years
Q3 2012: n/a
downtown office market (80% of the stock) at the expense of and have remaining potential to convert retail premises to cheap
Q4 2013: n/a
suburban growth may be changing. office on short notice.
Rental Rate Outlook: n/a
Should the City elect to build a new City Hall in 2013, its eventual
outlook completion in two or three years will have an effect on the class B
Downtown class A vacancy is forecast to decline from the current market in London. But until then, expect plodding but noticeable
9% to a historic 8.8%. Overall downtown’s 2012 rate of 15.9% absorption and some higher altitude in rents through 2013.
should also decline marginally. However, downtown class B
buildings will continue to struggle, with those that control onsite
parking faring the best. Vacancy in this asset class will remain
stagnant at 21%.
Large floorplate users (new and renewal) in London will face
increasingly intransigent landlords whose newfound confidence
will be reflected in higher face rates and lower inducements. We
expect downtown class A rents in the $13 to $21 psf range,
class B from $10 to $12 psf and suburban rates to range from $11
to $13 psf. Operating costs in London top out at $16 psf.
10
11. OUTLOOK 2013
A Cushman & Wakefield Research Publication
WATERLOO REGION: MARKETS AT A GLANCE
Slow and steady OFFICE
Central Area
Overview Inventory:
Q3 2012: 2.7 million sf
Waterloo Region has a long and proud history of manufacturing
Q4 2013: 2.7 million sf
and innovation, especially in the technology sector. The region
is made up of three cities, Waterloo, Kitchener and Cambridge, Vacancy Rate Outlook:
as well as the Townships of Woolwich, Wellesley, Wilmot and Q3 2012: 19.8%
North Dumfries. It is rapidly growing and moving forward with Q4 2013: 16.1%
development plans to accommodate accelerated population
Rental Rate Outlook:
growth. A Rapid Transit System, which includes a light rail transit
line to be completed by 2017 and multi-modal transit hub, is Suburban
already driving development in the downtown cores of both
Inventory:
Kitchener and Waterloo.
Q3 2012: 4.1 million sf
The City of Waterloo was named the Intelligent Community of Q4 2013: 4.2 million sf
the Year in 2007, and is home to Wilfred Laurier University and Vacancy Rate Outlook:
the University of Waterloo, as well as numerous tech companies Q3 2012: 13.8%
and incubators. The region has seen a tremendous increase in Q4 2013: 12.7%
technology start-ups, international tech companies and innovation
in the last few years. Rental Rate Outlook:
outlook
Cambridge has experienced persistently high vacancy at 30%
RIM, Google, OpenText and Desire2Learn are some of the well- in the Downtown Core and 18.5% in the suburban market.
known large technology companies located in the region. Waterloo Primarily an industrial market, it has been affected by speculative
also continues to benefit from a large presence of traditional construction and municipal office supply coming to the market.
employers such as Manulife, Sun Life Financial and the universities.
The city consistently has the lowest vacancy in the region.
The Uptown Waterloo core market has achieved critical mass, with
a low vacancy rate of 6.5%. Most of the financial services offices are
located in the core, which continues to command premium rents
with limited supply. The Waterloo suburban market saw an increase
in vacancy to 9%. It is still considered stable, but larger transactions
have slowed. RIM occupies substantial suburban office space and its
occupancy needs remain unknown as it continues to find its way in
an intensely competitive industry.
Kitchener has experienced its own technology revitalization in
the last few years with the redevelopment of old industrial spaces
into chic brick-and-beam office space — almost 500,000 sf has
been converted since 2009. While positive for Kitchener, the core
market continues to be affected by tired availabilities. Vacancy was
at a high 20.6% in the third quarter of 2012, a slight decrease from
22% seen earlier in the year. Overall vacancy for suburban Kitchener
is 11.1%, with the lowest rate of 1.5% found in the Gateway Node
located on the HWY 401. Strong demand exists here for class A & B
buildings with easy access to transportation corridors, parking and
amenities. New supply is expected to meet this demand.
11
12. OUTLOOK 2013
A Cushman & Wakefield Research Publication
TORONTO: MARKETS AT A GLANCE
more robust development OFFICE
Central Area
Economic Outlook Inventory:
Q3 2012: 84.9 million sf
Stronger economic conditions, particularly in the U.S., are
Q4 2013: 85.0 million sf
expected to take hold by the latter half of 2013, which will
have spin-off benefits for Ontario and ultimately Toronto’s Vacancy Rate Outlook:
office markets. Canada’s economic expansion is expected to be Q3 2012: 4.6%
constrained at about 2% and the unemployment rate will remain Q4 2013: 4.8%
above 7% through 2013, according to TD Economics.
Rental Rate Outlook:
Overview Suburban
Downtown Toronto¹s office market performance has been a Inventory:
shining light in North America. In the wake of the last recession Q3 2012: 84.6 million sf
Q4 2013: 85.2 million sf
when 4.5 msf of new developments were slated to flood the
market between 2009 and 2011 many saw vacancy soaring into the Vacancy Rate Outlook:
mid-teens. Instead, 99% of this space is now occupied and, by the Q3 2012: 8.9%
end of 2012, downtown vacancy was a tight 4.3%. Demand was Q4 2013: 8.9%
strongest in late 2010 and through 2011, and eased somewhat in
2012, dragged down by persistent global economic uncertainty. Rental Rate Outlook:
However, although some tenants have returned space to the
market and decisions are taking longer, about 190,000 sf of
positive absorption took place in the third quarter of 2012, still TORONTO
OFFICE GTA OFFICE
above-average performance.
8,000 12%
The migration of tenants into the downtown 6,000 9%
Absorption (sf, thousands)
market from midtown and suburban markets
Vacancy rate
4,000 6%
will contribute to expansionary demand in 2,000 3%
downtown Toronto.
0 0%
(2,000)
Given the recent buoyancy in demand, tight markets and upward 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
pressure on rental rates, it¹s no surprise that new downtown ABSORPTION OVERALL VACANCY RATE
development announcements were a repeat story in 2012.
About 3.5 msf of new office space is slated to further transform
doors in GTA West and tenants relocating into these buildings
Toronto¹s skyline between 2014 and 2017. Until the latter half of
pushed absorption to 180,000 sf. Demand in the GTA East market
2014 when the first two developments bring relief, the market will
remained weak and vacancy held relatively flat. Vacancy rates in
remain very tight and additional rate increases are inevitable in
the GTA East and West were 9.2% and 10.4% respectively, while
what has become a landlord¹s market.
the GTA North remained extremely tight at 4.7%
Toronto¹s suburban markets, which are far more exposed to
U.S. and global economic upheaval in general, have had a tough outlook
time since 2008. Multiple-premises consolidations, densification
The outlook for downtown Toronto demand remains optimistic
and contractions continue to displace space, though, in the third
even in the face of easing demand conditions, which will likely
quarter of 2012, green sprouts of positive growth emerged in the
reduce the rate of absorption in the coming quarters. Demand
GTA West market. A number of new developments opened their
from the city¹s mighty banking sector, which continued to absorb
12
13. OUTLOOK 2013
A Cushman & Wakefield Research Publication
space in the third quarter of 2012, is expected to soften over
TORONTO
OFFICE CENTRAL OFFICE
2013 as institutions focus on cost containment alongside revenue
growth. Rental rates will continue to see upward pressure over
4,000 12%
the near term, given limited options in a tight market.
3,000 9%
Absorption (sf, thousands)
The migration of tenants into the downtown market from
2,000 6%
midtown and suburban markets will contribute to expansionary
Vacancy rate
demand in downtown Toronto as companies continue to move 1,000 3%
closer to concentrated, educated workforce pools. As well, 0 0%
the new high-quality office stock coming on stream will be very
(1,000)
attractive to tenants looking to achieve efficiencies through
updated occupancy strategies. (2,000)
00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
Notably, of the 3.9 msf of new construction, Menkes’ One York is ABSORPTION OVERALL VACANCY RATE
the only building to move forward without a lead tenant or pre-
commitment — a sign of confidence that this seasoned developer
has in the quality of its buildings and long-term viability of the TORONTO
OFFICE SUBURBAN OFFICE
downtown Toronto market. We also expect to see a growing
4,000 12%
willingness among tenants to expand into the downtown fringe
markets, including south, east and west markets, which have the 3,000 9%
Absorption (sf, thousands)
greatest development potential.
Vacancy rate
2,000 6%
Suburban markets will continue to be held back by weak
economic conditions and are likely to experience weak overall 1,000 3%
demand through the first half of 2013. As our largest trading
0 0%
partner emerges from the doldrums later in the year, demand
should see a significant boost. The key factors limiting growth (1,000)
00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
are a continued cycle of densification and the consolidation of
multiple-location operations. Drivers of growth will continue to ABSORPTION OVERALL VACANCY RATE
include engineering, the healthcare and pharmaceutical sector,
insurance, technology and professional services.
13
14. OUTLOOK 2013
A Cushman & Wakefield Research Publication
OTTAWA: MARKETS AT A GLANCE
balancing act OFFICE
Central Area
Overview Inventory:
Q3 2012: 17.9 million sf
The health of Ottawa’s office market is closely tied to demand
Q4 2013: 17.9 million sf
growth from the federal government. Since the government is
in cost-containment mode, demand for office space was weak Vacancy Rate Outlook:
through most of 2012. While vacancy increased slightly in the Q3 2012: 5.7%
past two years, downtown Ottawa remained relatively tight with Q4 2013: 5.3%
a central area vacancy rate of only 5.7%. The Capital’s vacancy is
Rental Rate Outlook:
historically one of the most stable in the country with very little
volatility in rental rates. Suburban
The federal government will have to address its aging stock of Inventory:
buildings over the coming years and this will create demand for Q3 2012: 19.5 million sf
space as tenancies relocate into longer-term swing space in order Q4 2013: 20.0 million sf
to buy time until major retrofits are completed. For instance, the Vacancy Rate Outlook:
Bank of Canada leased the majority of the space at the old EDC Q3 2012: 8.7%
building, but the space it vacated at 234 Wellington is owned Q4 2013: 10.1%
by the federal government and will not return to market before
receiving a major retrofit. Rental Rate Outlook:
Ottawa is active on the development front with
CENTRAL AREA
five buildings under construction, two of which are OFFICE
located in the downtown market. 1,000 8%
750 6%
Absorption (sf, thousands)
As the government consolidates or realigns its occupancies across
500 4%
Ottawa, some space will be returned to market. Health Canada
Vacancy rate
and The Status of Women Canada for instance, will relocate into 250 2%
other existing Health Canada controlled space in 2013, adding 0 0%
about 110,000 sf of available space at 123 Slater Street. In addition,
(250)
the Department of Defense and Canadian Armed Forces will be
relocating many of their offices into the 2.2-msf Carling Campus, (500)
00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
(former home of Nortel Networks) and will displace space from a
ABSORPTION OVERALL VACANCY RATE
number of its current locations across Ottawa.
While some of these buildings are owned and others leased, the in Q4 2014. This build-to-suit federal government building will
relocations will occur over a period of years, and much of this be occupied by the Treasury Board and Department of Finance,
space will be used as swing space. DND and Canadian Armed which are coming out of Esplanade Laurier. This existing building
Forces have 42 office locations in Ottawa and Gatineau. The will be going through a major retrofit. The second significant
intent is to relocate up to 10,000 employees into the campus. building under construction is Morguard’s 150 Elgin, a 350,000-sf,
Even though the departments own many of the buildings they multipurpose tower slated for delivery in the first quarter of 2014.
currently occupy, some space will return to market in Ottawa, The Canada Council for the Arts has leased around 85,000 sf and
increasing availabilities. is moving out of 350 Albert St.
Ottawa is active on the development front with five buildings Suburban markets were stable over 2012 with relatively tight
under construction, two of which are located in the downtown vacancy at 8.7% in the third quarter. Though market demand has
market. GWL’s 90 Elgin, at Bank and Laurier, will come to market been modest, high-tech tenancies located in the Nortel Campus
14
15. OUTLOOK 2013
A Cushman & Wakefield Research Publication
have mostly completed transactions to relocate to Kanata,
creating positive absorption in the market and tightening vacancy.
Three new developments are rising in the suburban markets that
will add 490,000 sf. The market is active with tenants who are
revisiting their occupancy decisions, but this is not translating into
expansionary demand.
outlook
Ottawa’s central area vacancy rate is expected to rise to 6.9% (all
classes) and 7.9% for class A by the first quarter of 2014. Rental
rates will remain stable in downtown and suburban markets.
Ottawa will see modest demand from non-government business
drivers and this will gain some momentum into 2014.
The market will remain relatively balanced, although some
additional softening may occur as the government begins to
occupy the Carling Campus. Because of the timeframe for this
relocation and due to the need for swing space to address the
need to upgrade many existing locations, it is uncertain how much
total space will be displaced. Space returning to market will be
partially offset by moderate demand anticipated to come from the
public sector as the aging space challenges are addressed.
15
16. OUTLOOK 2013
A Cushman & Wakefield Research Publication
MONTREAL: MARKETS AT A GLANCE
exciting times OFFICE
Central Area
Overview Inventory:
Q3 2012: 48.0 million sf
Montreal is seeing its first significant non-subsidized office
Q4 2013: 48.0 million sf
development go up in over 20 years. That’s big news for this
vibrant city and its downtown office market, which has been quiet Vacancy Rate Outlook:
for many years. Now sitting at near historic low office vacancy Q3 2012: 6.1%
rates, there is a sense that business optimism has regained a Q4 2013: 6.3%
strong foothold and that a cycle of expansionary growth has
Rental Rate Outlook:
begun. In the near term, Montreal will see some softening of
demand, however, as weakening global economic conditions reach Suburban
into the boardrooms and companies put occupancy decisions on
Inventory:
hold. But, not to worry: growth is expected to roar back in the
Q3 2012: 34.8 million sf
latter half of 2013. Q4 2013: 34.9 million sf
Because Montreal office markets languished with vacancy hovering Vacancy Rate Outlook:
within the 10% to 12% range for so many years prior to 2008, Q3 2012: 9.7%
it surprised many when it recovered so quickly from the global Q4 2013: 9.7%
recession, shifting to positive absorption midway through 2010.
Healthy demand and tightening vacancy followed, with the central Rental Rate Outlook:
class A falling below the key 6% barrier across all asset classes.
CENTRAL AREA
OFFICE
Because Montreal office markets languished with
vacancy hovering within the 10% to 12% range for 1,500 15%
so many years prior to 2008, it surprised many 1,000 10%
Absorption (sf, thousands)
when it recovered so quickly from the recession. 500 5%
Vacancy rate
0 0%
Montreal’s downtown revitalization is being fuelled by a growing (500)
condominium sector that has attracted a diversified and educated
(1,000)
workforce. This trend was punctuated with the kick-off in early
2012 of the Tour des Canadiens condo project, a 48-storey tower (1,500)
00 01 02 03 04 05 06 07 08 09 10 11 12F 13F
with 520 units and the L’Avenue project, a 590,000-sf mixed-use ABSORPTION OVERALL VACANCY RATE
project of residential condos, office and retail. Both projects are
being built adjacent to the Bell Centre.
came forward with a huge vote of confidence in the market with
The real turning point in the overall health of Montreal’s office its 2012 announcement that it would build a 520,000-sf LEED
market came in 2011. Since then, steady moderate expansionary Platinum tower, with Deloitte as the lead tenant (The Deloitte
demand has chipped away at the vacancy rate until it reached Tower). Currently, larger tenants have very few options in
respectable new lows. Central class A now stands at 5.9% and downtown Montreal, and these new developments will bring
class B is a tight 6.7%. welcome relief.
While demand eased in 2012, companies continued to grow and Montreal’s suburban markets were hit relatively hard by the
the market tightened. Then Kevric’s Altoria project started a recession, but they too bounced back faster than expected,
35-storey mixed-use building that includes 10 floors or 240,000 sf posting positive growth by the final quarter of 2010. In fact,
of office space, thus bringing to an end a 20-year non-subsidized 2011 saw about 100,000 sf per quarter of positive absorption
office construction deadlock. In addition, Cadillac Fairview and average absorption has been 85,000 per quarter over the
16
17. OUTLOOK 2013
A Cushman & Wakefield Research Publication
past two years. Although there has been very little speculative
construction, some design-build activity has taken place. Overall
vacancy remains at historically low levels, below 10%, primarily
because of prudent construction.
Outlook
While the first half of 2013 may see some easing of expansionary
demand as companies grapple with global economic uncertainty,
growth is expected to resume in Montreal’s downtown and
suburban markets in the latter half of 2013 and into 2014.
Vacancy rates in downtown Montreal will edge upward with the
coming of the Kevric tower, rising to about 6.4%, and will increase
further with the introduction of the Deloitte tower, reaching
about 7% by mid-2015. Overall, the market will remain healthy
and relatively tight, with some modest upward pressure on rental
rates along the way.
The development cycle will pick up steam in 2013 and beyond.
Along with redevelopment plans for existing obsolete sites, it is
public knowledge that Canderel plans to build two office towers
totaling over one million sf adjacent to the Complex Desjardins
in the vibrant Quartier des Spectacles. All that’s needed is a big
tenant to kick off the development.
Meanwhile, Ivanhoé Cambridge has announced that it will build
a 100,000-sf office tower completely on speculative basis in
Laval. What a sign of confidence! The new developments are
expected to be well received, as pent-up demand is building
among companies that are looking to expand and, at the same
time, create modern workplaces in new sustainable buildings. The
success of these new towers will provide incentive to continue
building in downtown Montreal and surrounding markets.
17
18. OUTLOOK 2013
A Cushman & Wakefield Research Publication
SAINT JOHN: MARKETS AT A GLANCE
STILL SLOW BUT RAYS OF HOPE OFFICE
Central Area
OVERVIEW Inventory:
Q3 2012: 2.3 million sf
Despite the economic uncertainty presented in 2012 for New
Q4 2013: 2.3 million sf
Brunswick, according to the RBC Provincial Outlook, 2013 is
expected to brighten. Potash production is expected to increase Vacancy Rate Outlook:
with the completed expansion of the Sussex mine, and export Q3 2012: 9.9%
sales of electricity are expected to rise as Point Lepreau returns Q4 2013: 15.3%
online after a four-year refurbishment. Modest gains in the spring
Rental Rate Outlook:
for forestry exports reflect an improving U.S. housing market,
and, as the economy continues to strengthen south of the border, Suburban
further advances are expected. The lift in overall exports should
Inventory:
keep overall economic growth at a modest pace of 1.8% in 2013. CENTRAL AREA
OFFICE
Q3 2012: n/a
The greater Saint John region is an energy and marine Q4 2013: n/a
100 16%
transportation natural geographic gateway and strategic 80
Vacancy Rate Outlook: 12%
distribution hub. At 2.4 msf, the city¹s office market has always 60
Q3 2012: n/a
Absorption (sf, thousands)
8%
been heavily dependent on Irving and Bell Aliant. Irving is the 40
Q4 2013: n/a 4%
Vacancy rate
20
market¹s largest employer, largest tenant and largest landlord, 0 0%
hence its capital projects and employment levels have an Rental Rate Outlook: n/a
(20)
enormous impact on the office market health. Bell Aliant, a (40)
descendant of New Brunswick Tel, has dramatically reduced its (60)
(80)
occupancy over the past five years.
(100)
06 07 08 09 10 11 12F 13F
In 2012, office market vacancy climbed to high teens as a result of
ABSORPTION OVERALL VACANCY RATE
the closure of contact centre space, and justice-related tenants
relocating from third-party space to a new provincial government
building. Saint John overshot demand during the period 2006-2008
when the second refinery, an expanded LePreau nuclear plant,
and Long Wharf Irving headquarters were all on the books. There
was widespread speculation that the construction boom would
replicate the frigate building program of the ’80s and ’90s where
thousands of well-paid project employees rented commercial
and residential spaces. As these projects were each cancelled
or deferred, the office leasing, residential leasing and residential
resale markets re-priced themselves and remain at lower prices,
or with material vacancy.
Outlook
For 2013, the rays of opportunity are presented by an accelerating
U.S. recovery, possible route changes to the XL pipeline,
redirecting it from west to east rather than Alberta to the U.S.,
and spin-off business potential presented by the $25-billion dollar
shipbuilding contract won by Irving Shipbuilding in Halifax.
18
19. OUTLOOK 2013
A Cushman & Wakefield Research Publication
MONCTON: MARKETS AT A GLANCE
slow growth OFFICE
Central Area
Moncton has long been nicknamed the “Hub City” because of its
central location in the Maritimes and proximity to U.S. markets, Inventory:
which has made it a gateway railway and transportation centre. Q3 2012: 2.7 million sf
In addition to transportation and logistics, other office demand Q4 2013: 2.7 million sf
drivers include education, healthcare, information technology, Vacancy Rate Outlook:
financial, legal, insurance and retail businesses. The city’s strategic Q3 2012: 6.4%
location and diversified economy ensure steady growth. As the Q4 2013: 6.0%
only fully bilingual area outside of Quebec, Moncton has also
become an attractive location for call centres and other global Rental Rate Outlook:
businesses. At the Université de Moncton, a new open-air stadium
Suburban
now hosts world track-and-field competitions and one CFL game
Inventory:
per year – another selling point for this growing city. CENTRAL AREA
OFFICE
Q3 2012: n/a
Q4 2013: n/a
160 14%
Overview
Vacancy Rate Outlook:
120 11%
Activity in Moncton’s office market remains brisk, marked by Q3 2012: n/a
Absorption (sf, thousands)
a growing number of small-to-average-sized tenants that are 80
Q4 2013: n/a 7%
Vacancy rate
exploring occupancy options such as flex industrial space or 40 4%
converting former residential assets into office space or sharing Rental Rate Outlook: n/a
space with other tenants to achieve new efficiencies. Office rent 0 0%
has remained steady at $13 to $14 psf. Moncton’s overall vacancy (40)
rate is 6.4%, with class A at 5.3%.
(80)
06 07 08 09 10 11 12F 13F
The opening of the new justice building had a significant impact
ABSORPTION OVERALL VACANCY RATE
on the market in 2012, as it initially attracted tenants from
Assumption Place and left scattered vacancy in other downtown-
core buildings. However, the market quietly normalized and the
Blue Cross Centre, Assumption Place and Commerce Place are
all back to expected or higher occupancy levels. Overall, modest
absorption in 2012 reflected positive growth.
The most significant project on the drafting table is a new
municipal asset, the Metro Centre, which, if it goes forward,
may house a revitalized Highfield Square Mall, a new rink and
convention centre, acting as a major attraction to the downtown
core. As well, the former CN head office, owned by Crombie
REIT, was taken off the market in order to complete a massive
revitalization program to convert it into a class A office building.
Forecast
Moncton’s office market will remain neutral or see some slow
growth in 2013. Rental rates are expected to remain flat through
to 2014, as they have for more than three years. The flight to
quality will continue and footprints will become increasingly
compressed as businesses pursue more efficient collaborative
workspace strategies that increase density and reduce costs.
19
20. OUTLOOK 2013
A Cushman & Wakefield Research Publication
FREDERICTON: MARKETS AT A GLANCE
Challenges ahead OFFICE
Central Area
OVERVIEW Inventory:
Q3 2012: 1.9 million sf
A centre for higher education, Fredericton is home to many
Q4 2013: 1.9 million sf
universities plus a variety of training colleges and institutes.
Named one of the world’s top seven intelligent communities by Vacancy Rate Outlook:
the global Intelligent Community Forum, Fredericton is home to Q3 2012: 4.8%
more than 70% of the province¹s knowledge industry, some 60 Q4 2013: 4.3%
R&D organizations and Canada¹s largest per-capita engineering
Rental Rate Outlook:
cluster. An established ‘smart city’, Fredericton was Canada¹s first
wireless city, and is also earning international attention for its Suburban
sustainability initiatives.
Inventory:
CENTRAL AREA
OFFICE
As the provincial capital, and home to the province¹s largest Q3 2012: n/a
university with a renowned engineering program, Fredericton Q4 2013: n/a
60 6%
continues to attract and generate intellectual economic Vacancy Rate Outlook:
40 4%
development to its extensive business park network known as Q3 2012: n/a
Absorption (sf, thousands)
RUN WAY. 20
Q4 2013: n/a 2%
Vacancy rate
Fredericton¹s 1.9-msf office market, concentrated mainly in the 0 0%
Rental Rate Outlook: n/a
downtown core, is home to three levels of government and the (20)
professional services that support them. In 2012, office vacancy
(40)
moved upward slightly due to the downsizing of some outsource
operations, as well as the addition of a new Knowledge Park (60)
06 07 08 09 10 11 12F 13F
building. However, overall vacancy was still tight at 4.8% as of the
ABSORPTION OVERALL VACANCY RATE
third quarter of 2012, and Fredericton posted the highest net-
asking rents in the province, averaging $14.22 psf.
Outlook
With provincial government finances under review, which could
result in downsizing and consolidation in this government-based
city, along with the 2013 closure of the Xstrata mine in Bathurst,
which relied on its suppliers and professional services, 2013 may
present some challenges for Fredericton.
20