Scotia Bank Sees Signs Of Revival In Commercial And Industrial Markets-00-6584

By Author: rafalinares
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Canadian office market activity is reviving after a significant slowdown in 2009. Leasing demand is firming up alongside rising office-based employment (e.g. finance, insurance and real estate, professional and engineering services, and information-technology), strengthening business confidence and improved access to capital (figure 2). Importantly, sublet space — a leading indicator of broader trends in commercial real estate — is beginning to stabilize,after increasing sharply last year.

The substantial amount of new supply coming on the market in 2009-2011 will likely push vacancy rates higher in many major centres this year, keeping downward pressure on rents. Canada's office market saw roughly 10 million square feet of new space in 2009, the largest increase since 1991. The national downtown office vacancy rate rose to 7.4% in the first quarter of 2010, up from 7.2% in Q4 and a low of 4.1% in mid-2008. Overall market conditions are moving back in favour of tenants for the first time in years.

Even so, the average central vacancy rate remains well below the 16-17% peak levels of ...
... the early 1990s, as well as the 30-year average of around 9%. We do not anticipate a return to these levels with perhaps the exception of Calgary's more oversupplied market. More conservative lending practices during the latest office building boom, including higher pre-lease requirements, has forestalled a bigger correction.

Retail real estate activity is also picking up, supported by a rebound in consumer spending and brisk housing activity. Vacancy rates have edged up after a record amount of new space was added in 2009, but remain relatively low. Demand for prime downtown space continues to outperform more saturated suburban markets.

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