A new study forecasts that falling vacancy rates will push the cost of commercial office space higher in coming months, especially in Western Canada.
The report, by the Toronto office of Colliers International, a global partnership of independently owned commercial real estate firms, shows the national vacancy rate dropped sharply during 2005. It finished the year at 8.7%, versus 10.9% a year earlier. The shrinkage in available space has already pushed up rents, a trend Colliers predicts will continue in 2006.
“We are advising tenants, especially larger ones, to address lease expiries early, given the trend of rising rents,” says Keith Reading, vice-president research at Colliers.
In Calgary, with its white-hot economy, vacancy rates plummeted from 11.7% in 2003 to 1.7% in 2005, and are forecast to slide to just 1.2% this year. Colliers predicts that net effective lease rates — which have already risen from $17.50 per square foot in 2003 to $20 in 2005 — will jump to $24 in 2006. That would make Calgary the country’s most expensive market. Toronto, where Colliers forecasts a modest increase from $21 in 2005 to $22 in 2006, would drop to second place.
The projections show Edmonton will remain among the cheapest places for office space. But rents are rising there the fastest: Colliers forecasts they’ll jump from $8 to $10 in 2006, which would mean a doubling in commercial office rents in the city since 2001. The study predicts five cities will post double-digit increases this year, all in the west: Edmonton (25%), Calgary (20%), Vancouver (13%), Victoria (13%) and Saskatoon (12%).
