The CBRE’s latest annual forecast for commercial real estate in Canada was released on Tuesday and the agency is predicting that office vacancy rates in Calgary will continue to rise next year.
The report from the world’s largest commercial real estate services firm suggests that job cuts and capital expenditures are mounting resulting in a continued rise in office vacancy rates for 2016.
"There isn’t a complete mass exodus out of the downtown core. All we’re seeing is a lot of companies just looking to reduce their costs and we’ve talked to many people about what is that and the two large expense items are labour and office space so as a result we’ve seen a lot of layoffs over the last year and a lot of companies putting office space on the market for sub-lease,” said Greg Kwong from CBRE.
The CBRE says vacancy rates will peak in the third quarter of next year and that will allow the pace of vacancy and rental rate declines to slow.
According to the report, leasing activity in the city’s industrial market has slowed but the growth of Calgary as a distribution and logistics hub for western Canada will offset losses from the oil and gas sector.
The CBRE says investment volumes are expected to be higher in 2016 and that the majority of the transaction activity will be made up of smaller assets from all property types with a particular demand for grocery anchored shopping centres.
Officials say the number of new office towers being built, the way goods are distributed and the amount of property that is purchased by foreign investors will be impacted by energy prices, monetary policy and business strategies around new technology.
“More than ever, new technologies are poised to deliver on the promise to alter the way we shop, ship, work and play. This factor, combined with unprecedented capital propelling commercial real estate purchases and new construction, is creating a dynamic environment that will produce winners and losers in 2016,” said Paul Morassutti, Executive Managing Director for CBRE Limited.
The report does offer some good news and shows that accountants and law firms remain active and hotels and resorts are also posting strong numbers because Albertans are vacationing closer to home.
“No building is future proof, no business model is infallible, no lease term is indefinite; however, the fact remains that Canadian commercial real estate fundamentals are some of the healthiest in the world,” Morassutti concluded
CBRE Calgary Market Outlook
Office - Central |
2014F |
2015F |
2016F |
Vacancy Rate |
9.8% |
16.3% |
18.4% |
Class A net Rental Rate (per sq.ft.) |
$33.03 |
$23.89 |
$18.81 |
Absorption (sq. ft. in millions) |
0.52 |
(1.94) |
(0.32) |
Class A Cap Rate (%) |
5.50 – 6.00 |
6.00 – 6.50 |
6.00 – 6.50 |
Net Supply (sq. ft. in millions) |
0.84 |
0.82 |
0.62 |
Under Construction (sq. ft. in millions) |
3.83 |
3.01 |
2.39 |
Office - Suburban |
2014F |
2015F |
2016F |
Vacancy Rate |
13.1% |
17.5% |
17.7% |
Class A net Rental Rate (per sq.ft.) |
$25.59 |
$23.12 |
$18.20 |
Absorption (sq. ft. in millions) |
0.60 |
(0.20) |
(0.30) |
Class A Cap Rate (%) |
5.75 – 7.25 |
6.00 – 7.25 |
6.25 – 7.75 |
Net Supply (sq. ft. in millions) |
0.98 |
0.90 |
0.44 |
Under Construction (sq. ft. in millions) |
1.31 |
1.69 |
1.36 |
Retail |
2014F |
2015F |
2016F |
Retail Sales (YoY – Conference Board of Canada) |
7.0% |
(0.7%) |
2.7% |
Neighbourhood Cap Rate (%) |
5.50 – 6.00 |
5.25 – 5.75 |
5.00 – 5.75 |
Industrial |
2014F |
2015F |
2016F |
Availability Rate |
4.7% |
8.3% |
8.2% |
Net Rental Rate (per sq. ft.) |
$8.40 |
$7.35 |
$7.25 |
Sale Price (per sq. ft.) |
$185.00 |
$176.00 |
$170.00 |
Absorption (sq. ft. in millions) |
3.71 |
(0.43) |
1.69 |
Class A & B Cap Rate (%) |
5.25 – 6.75 |
5.50 – 7.00 |
5.50 – 7.00 |
New Supply (sq. ft. in millions) |
1.64 |
4.45 |
1.78 |
Under Construction (sq. ft. in millions) |
4.62 |
1.43 |
0.35 |
Multifamily |
2014F |
2015F |
2016F |
Overall Vacancy Rate (CMHC/CBRE) |
1.4% |
3.5% |
3.7% |
Apartment Cap Rate (%) |
4.25 – 4.75 |
4.50 – 5.00 |
4.50 – 5.00 |
Investment |
2014F |
2015F |
2016F |
Office |
$709 |
$105 |
$267 |
Industrial |
$639 |
$399 |
$432 |
Retail |
$401 |
$299 |
$323 |
Multifamily |
$202 |
$206 |
$144 |
ICI Land |
$439 |
$332 |
$167 |
Hotel (Market & surrounding region) |
$148 |
$156 |
$80 |
Total |
$2539 |
$1497 |
$1413 |
Click HERE to see the complete report or scroll the document below…