Growth of office vacancy rates slows down

Office vacancy rates across the country continued to rise during the first quarter, but the pace is slowing down, indicating some stability may be returning to Canada's commercial real estate markets, according to CB Richard Ellis Ltd.

The real estate company said Tuesday the national office vacancy rate rose to 10.1 per cent in the first quarter this year, up from 7.5 per cent a year ago.

However, vacancy rates were only up slightly from the 9.9 per cent at the end of the fourth quarter of 2009.

John O'Bryan, vice-chairman, CB Richard Ellis, said the small increase from the fourth quarter is an indication the commercial real estate market in Canada may be through the worst of the recession.

"A more promising employment picture, slowly improving leasing activity and the residual impact those factors have had on the country's commercial real estate market is a welcome change from 2009 conditions," said O'Bryan. "Expect to see a slow recovery progressively in 2010. The majority of Canada's markets appear to be over the hump."

Sublet space flooding the market continues to be a problem but is no longer growing rapidly. The percentage of vacant office space that was sublet space was 21.9 per cent in the first quarter, up from 20.8 per cent a year earlier.

Vacancy rates rose in most of the major markets.

In Vancouver, the overall vacancy rate rose to 10.2 per cent in the first quarter from 7.2 per cent a year ago. The city's suburban area has added most of the new vacant space, said CB Richard Ellis. The vacancy rate in the city's downtown core rose to six per cent from 4.2 per cent a year ago but suburban Vancouver's vacancy rate has risen to 14.7 per cent from 10.7 per cent during the same period.

Alberta's two largest cities continue to be hit hard by weakness in the national gas sector. In Edmonton, the overall vacancy rate has risen to 10.6 per cent in the first quarter from 6.5 per cent a year earlier.

(prepared by Garry Marr/Financial Post/Vancouver Sun)