CBRE has published a Q3 2021 report on Canada’s office and industrial CRE (Commercial Real Estate) outlook. Here are the key trends that marked the latest quarter.
The office vacancy rate in Canada has reached 15.7%, which is the highest it has been since 1994. However, experts at CBRE believe the national vacancy rate will start improving, with the growing number of newly-constructed offices and most employers implementing return-to-office plans.
Leasing activity across the country is picking up the pace and boosting net absorption. Sublets make up only 20.5% of all vacant office space, but many are already under offer.
The industrial CRE market is witnessing record demand, as the national industrial availability rate is 2%, while the average net rent has risen to $10.03 per square foot.
According to CBRE, the only long-term solution for addressing the rising supply-demand imbalance lies in property development.
Construction of 34.1 million square feet of industrial space is underway, so that is good news. Most development projects set to complete by the end of 2022 are already pre-leased (63.4%), but there’s much more developable land in the country ideal for the sector.
Office and industrial CRE trends in Western Canada show a generally positive outlook as well.
Downtown office vacancy rates in Calgary reached 32.9% in Q3 2021, while its Class AA downtown properties witnessed a vacancy rate of only 8.2%.
In Edmonton, the vacancy rate of 18.6% regarding Class A downtown properties marks a return to pre-pandemic levels. Sublets make up 11.9% of vacant space, decreased due to the growing demand and lower net rents ($19.26 per square foot).
In Winnipeg, the suburban office vacancy rate rose to 11.3% in Q3 2021, but sublets more than doubled during that period. Overall office vacancy is expected to decline for most of Western Canada.
As for industrial CRE submarkets, the availability rates in Calgary, Edmonton, and Winnipeg came in at 5.6%, 8.4%, and 3.5%, respectively. The average net rental rates increased slightly to $8.38, $10.16, and $8.89 per square foot, respectively.
Calgary’s industrial market has seen the highest net absorption since 2006, with over 5.5 million square feet of positive year-to-date absorption. That’s 1.8 million square feet in Edmonton, where a record 4.5 million square feet of industrial space is now under construction.
The Q3 2021 report by CBRE is yet another testament to Canadian office and industrial CRE markets’ resilience.
With the new development of space and an eventual return to the office, office vacancy rates are bound to improve. The industrial sector is seeing more challenges due to the growing demand and lack of available space, but a growing number of development projects will keep opening up more opportunities.