TORONTO, ONTARIO--(Marketwired - Dec. 11, 2013) - With Canada's major cities in the midst of an office development boom, occupancy growth is expected to remain slow through 2014, putting upward pressure on vacancy rates, according to Cushman & Wakefield's Office Outlook report released today. However, even with more than 15 million square feet (msf) of new supply expected to alter skylines in the next few years, Canada's markets are "well balanced" and looking forward to improved demand in 2015. Toronto, Vancouver and Calgary will see vacancy rise by just 2 percentage points, while Winnipeg will see the smallest increase of the markets covered.

Central Area Class A Vacancy Rate
2013 2014F 2015F
Vancouver 5.3 % 7.7 % 10.5 %
Edmonton 7.0 % 7.9 % 6.3 %
Calgary 4.0 % 6.7 % 7.3 %
Winnipeg 3.5 % 3.9 % 3.7 %
Toronto 5.0 % 7.0 % 8.8 %
Ottawa 4.8 % 6.6 % 5.7 %
Montreal 8.3 % 9.1 % 10.5 %
Moncton* 8.0 % 11.9 % 11.9 %
Halifax* 8.5 % 11.4 % 10.6 %
St. John's* 2.7 % 5.1 % 2.1 %
*All classes vacancy projection

From Vancouver to St. John's, Canadian central markets are experiencing the most robust development cycle in over 20 years. Of the 5.1 msf under development in downtown Toronto, 1.6 msf will come to market in 2014. Calgary should see 5.2 msf of construction and downtown Vancouver is experiencing its most active development cycle in over 20 years, with 2.4 msf of office construction underway in the downtown and Broadway. As well, Montreal will welcome the Aimia Tower in 2014 and Deloitte Tower in 2015 - the first privately funded office building to rise in over15 years, and St. John's will see 310,000 square feet (sf) rise in the downtown market - the most robust cycle since 1986.

"With this new supply coming online over an extended period, we fully expect the shift from a landlord's market to a tenant's market to be tempered," said Scott Chandler, President and CEO of Cushman & Wakefield. "The rise in vacancy will be moderate and bring much-needed space options to markets that have been constrained by a shortage of large availabilities for the past few years. Rental rate declines will be mild, but tenants will have more choice. This trend may stimulate some corporate expansion."


Vancouver is currently witnessing the strongest development cycle of the past 20 years. The central area currently has 2.4 msf coming out of the ground, and 60% of this space is preleased.

"In 2013 we saw, on average, 60,000 sf of negative absorption per quarter - this was the result of weaker global growth and the slower-than-expected recovery in the United States," said Mark Chambers, Senior Vice President, Cushman & Wakefield Vancouver. "While we expect demand to remain soft in the first quarter of 2014, we'll see stronger momentum in the balance of the year. This negative absorption should be seen as an opportunity for tenants who have had few options for expansion or relocations due to historically low vacancy since 2008 to satisfy growth needs or relocate. The preleasing success of the new towers coming to the market is a testament to the pent-up demand for quality product in the city, and the overall strength of the market."

As tenants relocate into new towers, there will be a large displacement of space into the market, with vacancy expected to rise into the low double digits by 2015. Rental rates will see some modest easing over the next two years, offset by the anticipation of continued growth in late 2014 and 2015.


Calgary's premium space vacancy rate fell to 1.0% in late 2012 and even after some softening only increased to 3.5%. Like other major Canadian markets, it is in the midst of a central area development boom. Calgary's downtown and Beltline markets will see 5.2 msf of new development completions between now and 2018.

"Tenants have warmly received and reacted quite favourably to the new supply of office space," said Robert MacDougall, Senior Managing Director of Cushman & Wakefield Calgary. "Developers have noted this, and through 2013 continued to announce new projects despite softening demand and weaker commodity prices."

Weak demand will continue to characterize Calgary's central office markets over 2014, though improved global economic conditions and positive outcomes that will strengthen Alberta's ability to ship oil should buoy demand into 2015. Calgary's premium class vacancy rate is projected to rise to 6.7% by the end of 2014, and reach 7.3% by the fourth quarter of 2015. Rental rates should decline modestly.


Tight provincial government budgets and low natural gas prices have slowed demand in Edmonton's central office market in recent years, offset in part by strength in the oil sector. Modest expansionary demand should continue through 2014, largely due to the huge projects supporting the oil sands activity in Fort McMurray, which is driving modest growth in engineering, project management and professional services companies. This positive growth environment has set the stage for the construction of a new downtown office tower and several suburban developments. The new construction in downtown Edmonton has attracted some strong private sector leasing activity, speaking to the long run confidence in the Edmonton market.

While there is some risk that a significant amount of space could be displaced by the City of Edmonton as part of a consolidation in the 2016-17 time horizon, barring this event, the Edmonton office market should see continued modest growth. "The city of Edmonton is active, and interest in the new Kelly Ramsey building, given the pre-leasing, is positive to date, and shows that private companies see real value in paying market rates for modern, more efficient space" said Dustin Bateyko, Sales Associate, Edmonton office.

While vacancy rates will rise with the arrival of the new Kelly Ramsey building, the vacancy rate for premium space is expected to peak at 8.7% in early 2014 and then fall to 6.3% by the end of 2015. Rental rates are projected to remain flat throughout the 2014 to 2015 period.


Winnipeg is continuing to see a massive investment of capital in the downtown area as part of a revitalization program focused on the Sports, Hospitality and Entertainment District (SHED). Nearly $1.4 billion in total investments have been committed as part of this revitalization.

"Winnipeg is on the verge of seeing a very dynamic office market after several years of essentially zero absorption," said Brett Ferguson, Managing Director, Cushman & Wakefield Winnipeg. "Now we are seeing a movement to high-quality space and some new entrants to the market. This is negatively impacting lower quality space, widening an already large gap between A and B office product."

Class A space will remain near historic lows even in the face of new development activity. With the addition of the office tower at 311 Portage Ave., vacancy will initially rise to a peak of 4.0%. Modest expansionary demand for Class A space will drive vacancy slowly downward until it reaches 3.7% at the end of 2015. Rental rate pressure on premium space should rise modestly over 2014 and 2015.


The remarkable demand surge that saw premium vacancy in downtown Toronto tighten to 4.4% by late 2012 on the heels of 4.5 msf of new supply coming to market has come to an end - at least for now. Even though weaker global economic conditions stalled demand through 2013, developers moved forward with confidence, triggering yet another development cycle that will bring 5.1 msf to market by 2017.

Slowing business growth and a build-up of excess space has led to a significant rise in sublet space, exerting more upward pressure on vacancy. These softer demand conditions, and the resulting neutral or negative absorption, will continue through most of 2014. Still, the central Toronto market remains a very tight office market with a premium class vacancy rate of 4.7%.

"We will see the momentum shift towards tenants over the next two years," said Michael Caplice, Senior Managing Director of Office Leasing for Cushman & Wakefield Toronto. "While the new towers are having great success in terms of preleasing, the total competitive premium space coming to market in downtown Toronto is substantial."

Net rental rates will see some softening over 2014 and 2015, with the level of decline dependent on the individual assets and the overall market strength. The fact that three additional developments were announced in 2013, while demand was softening, speaks to the confidence in long-term demand and the depth of the tenant base in the market.


Approximately 840,000 sf of new supply will arrive in Ottawa's central market in 2014. Despite strong activity in Morguard's 350,000-sf building at 150 Elgin Street, there are little signs of overall office growth, and the impact of this new supply will push vacancy upward. The second development at 90 Elgin Street will be fully occupied by the federal government, though no space will be displaced into the market as it is expected that the originating buildings will be taken off the market to undergo a major retrofit. This will help minimize the rise in vacancy moving into 2015.

"The Ottawa market is largely reliant on the federal government, the high-tech sector, and tourism. Our office market saw weaker demand throughout 2013 partly because of reduced government spending," said Alain Desmarais, Senior Managing Director of Cushman & Wakefield Ottawa. "Government restraint took its toll on the office sector and on the region as a whole with only modest GDP growth of 0.8%."

While overall demand is expected to remain weak across 2014, momentum will improve in 2015 as fiscal restraint is eased. Ottawa's central market has a vacancy of only 4.3%, though new supply will push it towards 6.6% by the fourth quarter of 2014. Rental rates will remain relatively flat over this period.


While new developments rising in Montreal speak to the confidence in the future of the city's office market and the added value of modern efficient buildings, Montreal's near-term demand is expected to remain weak and vacancy will rise before demand regains traction.

"For years Montreal has been largely stagnant - but now with new supply coming to market we're seeing a more dynamic market which is forcing both tenants and landlords to adjust their preconceived notions of 'normal'," said Bernie Marcotte, Senior Managing Director of Cushman & Wakefield Montreal. "With two, and potentially three new developments in the downtown, we're going to see a shift to a 'tenants' market and with that we'll see additional upward pressure on vacancy and downward pressure on rental rates in older, un-retrofitted buildings."

New supply will contribute to a vacancy rate that will reach 9.1% by Q4 2014, and 10.5% by the end of 2015. Rental rates will see some downward pressure over 2014 and 2015 as Montreal's market receives new space and options.


Moncton has felt the pinch of weakened demand due to challenging economic times. Economical Insurance recently announced the closing of its Moncton branch, eliminating 22 positions. Call centre activity has also been adversely impacted as companies have turned to lower-cost developing countries to perform such services.

The provincial government has a number of strategic investments underway to support stronger white-collar job growth. For instance, CGI announced plans to create 125 positions in Fredericton and Moncton in the next three years in conjunction with an investment by the provincial government. This will contribute an additional $11.8 million annually to New Brunswick's GDP growth.

"We've seen very little demand for office space through 2013, and we expect little improvement in the near term," said Bill MacAvoy, Managing Director at Cushman & Wakefield Atlantic. "While a pick-up in the US economy and an increase in production from the Sussex potash mine would be welcomed improvements - we see demand remaining flat through 2015."

With some new supply coming to the market in 2014, vacancy can be expected to rise to 11.9%, while rental rates will remain relatively flat.


Nova Scotia was challenged by weak real GDP growth in 2012 and 2013, but is expected to turn around in the next two years thanks to a number of drivers. A recent increase in export momentum is attributed to the Port Hawkesbury Paper mill, which is back at full production. While maintenance work at the Sable offshore facility contributed to significant declines in natural gas exports in 2013, looking forward, the start up of the Deep Panuke facility should drive exports and growth upward.

The business community is looking forward to considerable spin-off benefits from the $25-billion federal government shipbuilding contract, which is in the initial preparation stages. While the cutting of steel has not yet commenced, Irving Shipbuilding has started the $300-million modernization of the Halifax Shipyard to accommodate the construction of the vessels.

"Central Halifax has seen positive growth in its office markets in 2013," said Bill MacAvoy, Managing Director at Cushman & Wakefield Atlantic. "With some new premium office space coming to market in 2014, we can expect vacancy to rise modestly next year, then start to taper off."

With modest positive demand expected over the next two years, the all-classes vacancy rate is expected to rise to a peak of 11.4% in 2014, and then decline to 10.6% by Q4 2015. Rental rates will rise as a result of newer, more expensive product in the market.


Newfoundland and Labrador continue to attract enormous investment by resource-related companies, with over $36 billion in major capital spending either planned or underway. The oil and gas sector is driving about $20 billion of this investment. The Hebron oil project has an estimated price tag of $14 billion and Muskrat Falls hydroelectric plant is the largest utility-related project.

Provincial real GDP growth has always been volatile given its close ties to the energy industry. After a GDP drop of 4.8% in 2012, growth could reach 5.1% in 2013, fueled by the oil sector recovery, but is expected to fall back to only 0.5% in 2014 and 1.8% in 2015 (TD Economics).

Overall availability has been extremely limited in recent years, though vacancy increased modestly in 2013 to 3.5% from 2.3% in 2012. Often occupancy growth in markets of this size is constrained by the limited availability of contiguous space.

"St. John's is experiencing a level of development not seen in 25 years. This was triggered by a serious shortage of space, especially in the face of strong project-related demand," said Susan Morrison, Manager, Newfoundland and Labrador at Cushman & Wakefield Atlantic. "Even so, the bulk of this new space is preleased and very little space will be freed up in the long term. Vacancy is expected to remain quite low."

While the vacancy rate will rise to a peak of 6.7% with the addition of the new developments, it will then begin to decline to 5.1% by Q4 2014 and to 2.1% by the end of 2015, thanks to modest positive expansionary demand. Rental rates will see some initial upward pressure in 2014 and should stabilize in 2015.

(1) Markets surveyed for this forecast include: Vancouver, Edmonton, Calgary, Winnipeg, Toronto, Ottawa, Montreal, Moncton, Halifax, and St. John's. Other markets included in the report are London and Waterloo.

Cushman & Wakefield is the world's largest privately‐held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has nearly $4 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at

Contact Information:

Cushman & Wakefield
Brad Dugard
416-359-2545 or 647-268-4599