November 11, 2008 CANADA UPDATE NAIOP’s Vancouver Chapter Releases Annual Regional Office Development Cost Survey NAIOP’s Vancouver chapter recently released their ninth annual Regional Office Development Cost Survey. This comprehensive report encompasses the 20 municipalities in the Vancouver commercial real estate market and provides an up-to-date overview of the city’s office market. In addition, the survey provides statistics on Vancouver’s municipal fees and approval times for all municipalities, business to residential tax ratios and informative editorial pieces on The Benefits of ‘Green’ Office Space and New Corporate Work Places and Office Building Design. Vancouver chapter members who worked on the project include: Geoff Heu, chairman of the chapter’s development issues committee; Andrea Wellburn; Derek Jones; Chris MacCauley; Cheryl Carter; Darlene Schneider, NAIOP Vancouver executive director; Ed Wilson; Graeme Silvera; Michael Mussacchio; Rob Busch; Pedo Tavares; and Wendy Waters. For more information on this vital survey, contact Darlene Schneider at (604) 946-0678. Global Turmoil Threatens Commercial Real Estate in Calgary A recent article in The Calgary Herald predicted a stormy outlook for Calgary’s commercial real estate market for the rest of 2008 and into the first part of 2009, a direct result of the current worldwide economic turmoil. Greg Kwong, regional manager for CB Richard Ellis in Calgary, noted that vacancy rates in the city’s commercial real estate market remained relatively low compared to the rest of Canada. However, he predicts that the remainder of 2008 and the first quarter of 2009 will see the cancellation of many new projects and virtually no spec building, due to a lack of new tenants and limited takeout financing. According to CB Richard Ellis’ third quarter downtown office report, the vacancy rate rose only 20 basis points from the previous quarter to 4.1 percent. Of the downtown space under construction, 70 percent is already preleased. The vacancy rate in the industrial market rose slightly in the third quarter to 1.7 percent with 2.1 million square feet under construction.  Richard Pootmans, business development manager of real estate for Calgary Economic Development, maintains that the city will continue to post growth despite the global financial situation. He stated “The commercial real estate sector will reflect the growth forecast that we have for next year. We are still forecasting growth. We have modified our growth forecast and it is albeit more modest growth. Nonetheless, I think commercial real estate will go through the rebalancing it has now, find a stable realm of absorption rates and vacancy rates, which might start to approach five and 10-year levels, but nonetheless be a relatively healthy sector of our economy.” Industrial Sector Holds More than its Own A recent article in The Globe and Mail cited the ongoing growth of the burgeoning industrial real estate sector. Industrial real estate, particularly space used for warehousing and logistics, is still positioned as one of the most sought-after segments in the commercial real estate market. Despite a dip in the economy of Eastern Canada, the demand for industrial space is still strong. In the West, the market is still hot, despite challenges in acquiring land and the rising costs of construction. Jason Barr is managing director for Alberta North and British Columbia at Roynat Capital in Edmonton. He said that 2007 was a record year for his merchant bank, a unit of Bank Nova Scotia, when it came to financing industrial and warehouse construction. Barr said “Business is booming. Construction costs here are the highest in Canada and serviced industrial land is going on $1 million an acre, but demand for industrial property is so great that neither is stopping new construction.” Mark Stainer, a senior managing director at Cushman & Wakfield LePage in Toronto, added that “U.S. companies have been driving the sector. They’ve been coming in and building not just structures they have tenants signed up for, but speculative buildings as well.” “U.S. companies are proving aggressive competitors in the Canadian market,” Stainer noted. “While major Canadian landlords are often unwilling to go below a minimum ten-year lease, even with vacancy rates as low as two percent in their properties; U.S. developers will often accept two-year leases. This works in their favor when it comes to finding tenants among logistics companies, which usually have one- to three-year contracts with their customers.” Cushman and Wakefield LePage statistics show that the Greater Toronto area’s industrial vacancies have risen slightly this year to 5.9 percent in the third quarter. That figure is close to that of Ottawa at 5.2 percent, Montreal at 6.5 percent, Halifax at 6.4 percent and St. John’s at 5.8 percent. In the West, the vacancy rates for industrial properties are much lower with Calgary showing a vacancy rate of only 2.7 percent available for lease, Vancouver coming in at 4.3 percent and Edmonton boasting a 1.9 percent vacancy rate in the second quarter, the most recent period available from Cushman. Construction Spending Falls Less than Expected In an article published in The Toronto Star on November 4, there was positive news regarding construction spending in Canada. The article cited that construction spending fell by a smaller-than-expected amount in September as a rebound in nonresidential activity helped offset further weakness in home building. The Commerce Department reported that that construction spending dropped by 0.3 percent in September, less than the 0.8 percent decline many economists had been expecting. Spending had risen by 0.3 percent in August after a huge 2.4 percent drop in July.