Office Markets Across Canada Which markets face challenges and what are the key factors impacting demand? Presented by Michael Caplice Senior Managing Director, Market Leader Cushman & Wakefield GTA
Economic Climate Conditions impacting major Canadian office markets Sustained oil price declines and four year commodity slide China’s factory activity shrinks through 2015 Weakening global growth expected contrasts with strong GDP growth in U.S. Recent U.S. job growth success increases likelihood of rate hikes A technical recession in Canada spurs interest rate declines Strong U.S. demand drives growth for Canadian products Lower energy costs drives consumer demand
Bird’s Eye View CBD national office market faces softening demand Vacancy rate vs. rolling average absorption (CBD all classes) (000’s sf) 11.2% 2,000 12% 9.1% 8.6% 1,500 9% 7.5% 1,000 6% 4.1% 500 3% 0 0% -500 -3% -1,000 -6% Average Absorption Vacancy Rate -1,500 -9% 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Bird’s Eye View Overall national suburban office markets Vacancy rate vs. rolling average absorption (suburban all classes) (000’s sf) 2,000 16.0% 12.9% 12.2% 1,500 11.1% 12.0% 7.8% 1,000 8.0% 8.1% 500 4.0% 0 0.0% -500 -4.0% 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Absorption Vacancy Rate 4
Active Markets in North America New completions and under development (2009-2019) MSF 12.8 12.7 Canadian Markets 12.0 U.S. Markets 10.9 7.5 7.2 6.3 4.9 3.6 3.2 2.8 2.5 2.5 1.9 1.7 1.3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Where Availabilities Stand National conditions soften but Toronto remains strong (CBD premium) 15-year average 4.0% 3.5% 7.2% 5.9% 7.5% 3.8% 10.8% 10.1% 9.8% 9.5% 8.6% 7.0% 6.9% 6.6% 6.2% 5.9% 5.8% 5.7% 5.3% 4.8% 4.9% [VALUE] 2.0% [VALUE] Edmonton Vancouver Calgary Toronto Montreal Ottawa Q2 12 Q3 14 Q3 15
Factoring in New Supply Impact of current development cycle (2014-2019) Premium inventory growth 19.5% 16.0% 16.5% 5.9% 15.5% 9.3% 7.0 M 4.7 M 2.3 M 1.7 M 1.6 M 839K Vancouver Calgary Edmonton Montreal Toronto Ottawa Completed Under construction/preleasing underway
Gauging the Impact of Future Space A look at two demand scenarios against total expected supply QTRLY ABSORPTION ASSUMPTIONS 15 YEAR HEATED AVG. DEMAND Vancouver 1.8 6.9 35 130 Calgary 3.0 8.6 120 350 7.2 Edmonton 17.3 25 60 4.3 Toronto 10.3 130 310 2.3 Montreal 7.7 115 35 Ottawa 0.8 3.0 50 100 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033
Challenging Office Outlook Markets brace for rising availabilities against mixed demand Availability Rate 20.4% 21% 18.6% 18% 15% 13.0% 12.3% 12% 9.2% 9% 6% 6.4% 3% 0% 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 Calgary Edmonton Vancouver Toronto Montreal Ottawa
National Investment Snapshot National office transaction volumes significantly down from 2014 levels Billions $ 8 7 6 5 4 3 2 1 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Real Capital Analytics, Realnet, Realtrack, Cushman & Wakefield, transactions over $5MM
National Investment Snapshot National office capitalization rates CAP rates remain at a significant spread to 10-yr GOCS, but with growing geographic disparity 6.5% 8.0% 7.0% 6.0% 6.0% 5.0% 5.5% 4.0% 3.0% 5.0% 2.0% 1.0% 4.5% Q1 2006 Q3 2007 Q1 2009 Q3 2010 Q1 2012 Q3 2013 Q1 2015 Q1 2013 Q3 2014 Toronto Vancouver Calgary Toronto Vancouver Calgary Montreal Edmonton Ottawa Montreal Edmonton Ottawa 10 Year GOC Source: AltusInsite, Bank of Canada
National Investment Snapshot 2015 participant profiles Growing trend of Canadian corporates monetizing assets, increasing foreign investment, but a lack of REIT buying activity Vendors Purchasers Private User Foreign Investor Foreign REIT / 6% 2% 3% REOC 10% 7% Private Fund Investor Advisor 3% 34% Fund Advisor Pension 40% Fund / Lifeco 47% Pension Fund / Lifeco 48% Source: Real Capital Analytics, Realnet, Realtrack, Cushman & Wakefield, transactions over $25MM
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