July 17, 2008
Economic Snapshot - July 18, 2008
Demand for Canadian office space remains strong, for now
Despite a marked slowdown in office-based employment growth in Canada in the second quarter of 2008, the national office vacancy rate fell to 5.9% from 6.0% in the first quarter.
Since the percentage of vacant office space fell in all but two of the 10 largest census metropolitan areas (CMAs), it is clear that increased demand for office space was not concentrated in a <0x000A>particular region.
According to Cushman and Wakefield LePage’s latest National Office Statistics report, Western Canada is no longer the only region with a shortage of office space.
For example, the vacancy rate in St. John’s, Newfoundland fell to 2.7% in second-quarter 2008. This figure was the lowest rate in the country.
The St. John’s metro-area office market should remain tight well into next year, since the most recent CanaData Construction Starts report indicates that the CMA has no major new commercial projects currently under construction.
The Edmonton office market is the second tightest in the country at 4.1%. Growth of office-based employment also accelerated in the second quarter. The Edmonton CMA’s office market is likely to remain tight into 2009, even as construction of a number of large commercial projects, such as the Epcor Office Tower, continues.
In Vancouver, the office-vacancy rate fell to 4.5% in the second quarter, down from 4.9% in the first quarter. This figure marks the lowest level the rate has reached since third-quarter 2000.
Despite the addition of 323,000 square feet of rentable space in the first half of the year, the sustained pattern of double-digit growth of office-based employment in the same period should keep demand for commercial space strong across the country well into 2009.
Looking ahead, two factors suggest that the national office demand cycle is close to — or perhaps at — its peak: (1) the slowdown in office-based employment in the second quarter; and (2) the overall moderation in economic growth. Therefore, national office demand will probably slow through the second half of 2008 and into 2009.
Office Vacancy Rates in Canada and Major Cities
Data source: Cushman and Wakefield LePage.
Chart: Reed Construction Data - CanaData.
