Vacant office space rate shrinks

National office vacancy rates have dipped below the 10-per-cent mark for the first time in years, two new studies show, thanks to a huge hunger for space in downtown Calgary and Olympics-driven demand in Vancouver.

Vacant downtown office space across the country fell to 9.6 per cent in the second quarter, a level not seen since 2001, according to a new report by real estate firm CB Richard Ellis. A similar report by Royal LePage Commercial Inc. described the drop in the quarter as one of the largest in five years.

The booming oil patch has made the Calgary office market the hottest in the country, with downtown vacancy rates for prime properties hitting 4.2 per cent in the second quarter, the CB Richard Ellis study finds. Overall vacancy rates for the city dropped to 7.2 per cent from 8.3 per cent in the previous quarter -- the lowest in the country.

The shrinking supply of available office space in Calgary is causing huge jumps in some rents and a building boom that will see at least three new towers in the downtown core.

"We're seeing hockey-stick spikes in rent," said CB Richard Ellis president Blake Hutcheson. "It has so much going for it. We don't see anything but good news in the Calgary market on the horizon."

Further west, the study found demand for space in Vancouver is up thanks to activity related to the 2010 Olympics. The city's Olympic Committee is searching for 220,000 square feet of space, the study notes.

Mr. Hutcheson said growth in Asia and the energy sector are also fuelling growth. Average rents have increased, and the vacancy rates for the area have fallen to 12.2 per cent from 13.1 per cent in the first quarter.

In Toronto, home to almost half of the country's office space, Mr. Hutcheson said rents are edging up after years of declines.

For the first time in five years, he is predicting average rents to increase in the third quarter, a sign that the tenants' market may be coming to an end. "When it turns it turns," he said. "We are starting to see real movement."

Rising rents could be the trigger for office construction in Toronto. Mr. Hutcheson said it is only a matter of time before one of the three or so proposed buildings signs a lead tenant and begins to build.

The Royal LePage study also saw strong markets in Calgary and Vancouver and new reasons for Toronto landlords to be optimistic.