Canadian commercial real estate may see post-COVID-19 economic upswing: report

CBRE says Canadian commercial real estate is pointing to a post-pandemic economic upswing.

The commercial real estate company says the pace of office vacancy increases eased in every major Canadian city in the second quarter and industrial demand picked up.

Downtown office leasing increased in major cities by the smallest amount since the pandemic’s onset last year with office tenants preparing to welcome employees back in the second half of the year.

CBRE says Canada has North America’s four tightest downtown office markets with Vancouver’s vacancy at 6.6 per cent, Toronto at 10 per cent, Ottawa at 10.6 per cent and Montreal at 11.1 per cent.

Halifax’s office vacancy decreased to 19.7 per cent downtown and 13 per cent in the suburbs in a possible sign of a return to normalcy as part of the reopening process.

Sublets, which flooded the market during the pandemic, are now in demand with some companies pulling the spaces off the market to reoccupy the offices.

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The company says nearly 90,000 square metres of office space previously put up for sublease was cancelled or leased in downtown cores in the second quarter, with half of that in Toronto.

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“Sublet listings can be knee-jerk reactions in a sudden market correction. The fact that sublets are being cancelled or leased up by new business is a very good sign and this only just the beginning of the trend,” says CBRE Canada vice chairman Paul Morassutti.

“Canada’s major office markets have fared well over the past year compared to our global counterparts and we can expect the momentum to continue to build as lockdowns are eased.”

Prime industrial real estate is in high demand, with Waterloo Region having the lowest industrial availability rate in North America at 0.9 per cent.

All markets outside the Prairies have availability rates of three per cent or less, with Toronto, Vancouver and Montreal at 1.2, 1.1 and 1.4 per cent, respectively.

Rising land and construction costs are limiting options for industrial businesses.

The amount of space for lease or purchase decreased in the quarter by 35 per cent in Vancouver, 28 per cent in Montreal and 25 per cent in Toronto. Calgary’s rates decreased by 1.2 per cent while Edmonton’s rate fall by 0.7 per cent.

“The level of industrial demand is unprecedented and is now running up against very real limitations,” added Morassutti.

“We don’t have enough space to accommodate business demand and can’t build new space fast enough.”