“As the number of deals in progress slows, driven by uncertain global economic news and the related fall in business and consumer confidence, the capacity to meet demand for new space in most major markets will create a serious shortage of central inventory in the second half of 2012 and beyond,” said Pierre Bergevin, president and CEO of C&W Canada.
The uncertainty to start the year, however, is likely to slow development of new projects, and thus keep supply short, he said. Thus the lower inventory will result in lowered vacancy rates and increase in total rents if demand picks up.
The report predicted Calgary to be the tightest office rental market, with Class A vacancy at 1.2% in 2012. Vancouver will see a similar 1.9% vacancy next year in office Class A vacancy, although there will be some new developments starting soon there: the 465,000 sq. ft. and 22-storey Telus Garden, the 365,000 sq. ft. Bentall’s office development in Thurow, and Oxfod’s University Club at 265,000 sq. ft.
“These new developments will bring some much needed new office space to downtown Vancouver,” said Hendrik Zessel, senior managing director for C&W Vancouver. “The net result will be movement in vacancy, but we expect to continue to see modest absorption in 2012, with demand pickup up by 2013 and beyond.”
In Toronto, the market will be more level next year than most other major cities, as tenants swap old offices for new ones, leaving an increasing amount of Class AAA vacancy. But Cushman & Wakefield predicted the resurgence of population in the downtown area due to the unprecedented condo growth for the city will fuel future demand for centrally located office space.
“This is a dynamic market with a bright future that will see new buildings coming on stream, coupled with space being returned to the market, easing low vacancy and meeting future tenant demands,” said Paul Morse, senior managing director of office leasing.
The suburban market has slowed, but limited new supply will allow for a faster recovery, he said.
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But the lull in the market could be short lived, as the report also predicts office demand to regain momentum as early as the latter half of 2012.