Downtown office development boom on the horizon as space is at premium
A development boom is ramping up in Canada’s four largest office markets, including Calgary, says commercial real estate firm Jones Lang LaSalle.
The boom is motivated by a scarcity of quality space and strong market conditions, said a company report.
“Based on the projects either currently under construction or confirmed, the surge in new office development in Toronto, Montreal and Vancouver rep- resents the most significant uptick in new construction in a decade or more,” according to the report.
“The extremely low vacancy rate in downtown Calgary (0.7 per cent for Class AA and Class A space) has recently prompted a new wave of development in the market at a time when limited office supply is leaving ‘captive’ tenants little option but to extend existing leases.”
Brett Miller, president of Jones Lang LaSalle’s Canada operations, said low vacancy rates, strong demand and the continued economic strength of these four markets creates a favourable environment for new development.
“For tenants, this is a welcome trend considering the current limited space options for new and large blocks of space, and the steadily rising rental rates in this landlord-friendly environment. With major new supply being added, these markets are likely to shift closer to equilibrium over the next five years as landlords lose some of their current leverage,” he said.
In addition to already con- firmed projects such as Eighth Avenue Place and Calgary City Centre, another five buildings are awaiting commitments from lead tenants and could contribute another three million square feet of office space downtown by the end of 2016, said the report, significantly less than the 14 buildings and 7.4 million square feet delivered over the previous five years, including the recently completed Bow tower.
“The downtown market could potentially run out of Class AA and A space before new supply arrives in 2016,” said the report. “Vacancy is expected to peak at 5.7 per cent in 2017, following the projected completion of the bulk of proposed and confirmed developments the year prior.
“Given the lack of vacancy in office buildings completed during the last construction cycle, we expect that the majority of the proposed buildings would proceed if they are able to secure preleasing commitments in the 25 per cent range.”