[TORONTO, ON] — Office vacancy rates in Canadian urban cores have hit a low of five per cent for only the second time since 1985 as companies and employees flock to downtown locations.
Cushman & Wakefield said in a report released Monday that the national average rate in downtown cores rate fell to five per cent in the second quarter of 2012, down from 5.4 per cent in the first quarter.
The commercial real estate firm said high rental rates across the country mean very few options for tenants, putting upward pressure on rent, particularly in Toronto, Vancouver and Calgary.
One factor driving the trend toward downtown and away from suburban markets is what Cushman & Wakefield calls a "reverse migration" that has large organizations moving back to downtown cores.
"There is also a desire to attract and retain the top talent that is increasingly moving in to urban centres, and increasingly looking to work, live, and play in the city," it said.
The company said the supply crunch also signals the beginning of a development boom in office space at a rate not seen since the early 1990s, said Pierre Bergevin, president and CEO.
"This should address a portion of the current pent-up demand which is being largely driven by the aggregation of workspace and employees, greater productivity found in more modern building operations, and proximity to the workforce."
Calgary is currently the most active market in the country, with downtown vacancy rates falling to 3.1 per cent from 3.6 per cent in the first quarter of this year, driven by demand for office space by companies working in the oil industry.
"Even though oil prices have eased recently, it has done little to reduce the demand for office space in downtown Calgary," said Bob MacDougall, senior managing director at C&W in Calgary. "Once the huge oil sands projects get underway, it is difficult to just turn that tap off, and we're still seeing strong demand from the heavy oil sector."
In Vancouver, one of Canada's hottest commercial real estate markets, vacancy rates edged upward to 3.7 per cent from 3.5 per cent in the prior quarter, but demand remains strong and options for tenants requiring larger spaces are scarce.
Toronto vacancy rates dipped to 4.8 per cent from five per cent in the first quarter, with demand expected to ease in the coming quarters as new developments become ready for use.
Vacancy rates also fell in Edmonton, Winnipeg, Ottawa, Montreal, Halifax, Fredericton and Saint John.
The national vacancy rate for suburban markets remained flat at 9.9 per cent from the first quarter, suggesting a pause in momentum driven by weakening economic conditions.