Cushman & Wakefield: Vancouver Office Rents Highest in Canada

Toronto and Montreal Experience Fastest Growth in Rates

TORONTO--(BUSINESS WIRE)--Vancouver is Canada’s most expensive office market according to the Office Space Across the World 2012 report, released today by Cushman & Wakefield Commercial Real Estate (C&W). The report also indicates that Toronto and Montreal had the fastest growth in rates in Canada for 2011, with a jump in rents of 17.5 percent, and 6.1 percent, respectively. This increase put Toronto and Montreal at the number 4 and 8 spots on the top 10 list for rate growth in the Americas.

“As such, the market in Montreal has very quickly gone from a tenants’ market in 2010 and early 2011, to a landlord’s market. One development, a project by Kevric, will most likely see great interest in space by businesses looking for offices in the 50,000+ sq. ft. range”

Though rents in Vancouver’s central business district only increased modestly over the previous year, they remain the highest in the country, by far, at an average of $33.87 CAD/square foot/per year.

Hendrik Zessel, Senior Managing Director, C&W Vancouver says that the high rents in Vancouver are the result of demand that simply outpaces supply. “The downtown market is very tight right now,” says Zessel. “With no new buildings coming to market until at least 2014, that isn’t expected to change any time soon. The lack of available space is largely due to continued global economic uncertainty that stemmed from the 2008 recession, which had developers being very cautious. There have been some recent new development announcements, which will help to address demand in the next few years, but until then we expect our office market will remain the most competitive, and therefore most expensive in the country.”

Though development is booming in Downtown Toronto, the rents there saw a sharp increase at 17.5 percent, putting the average price per square foot at $23.30 CAD per year. A number of factors can be attributed to the rising office rents in Toronto’s central business district according to Stuart Barron, National Director of Research, C&W Canada. “Business optimism remains strong and key decision makers continue to have an expansionary mindset,” says Barron. “In addition, a reverse migration has occurred that has seen some traditionally suburban companies relocate into the downtown Toronto markets.”

This is being fueled, in part, by a desire to tap into the thousands of young educated workers moving into the condominium developments which continue to rise in and around downtown Toronto. Barron adds: “what gives us confidence is how diverse the growth sectors have been over the past few years.”

The story in Montreal is very similar to Vancouver: while Montreal’s central area was hit harder than most Canadian markets following the 2008 recession, business confidence returned in 2011, generating respectable demand and tightening central area vacancy – where the all classes rate fell to 6.4%. Rents in the downtown jumped 6.1% in 2011, pinning the average square foot/per year price tag at $20.84 CAD.

“Lack of contiguous space will be a major concern to the user market this year,” says Louis Burgos, Senior Managing Director, C&W Montreal. “As such, the market in Montreal has very quickly gone from a tenants’ market in 2010 and early 2011, to a landlord’s market. One development, a project by Kevric, will most likely see great interest in space by businesses looking for offices in the 50,000+ sq. ft. range,” adds Burgos.

Highlights of the Report Globally

• Steep increase in prime office rents in Moscow of 41% on previous year
• Scarcity of new offices being built in most countries resulted in a 2% rental uplift in Europe
• Only Western European markets recording rental declines were the so-called ‘PIIGS’ countries

Russia’s capital Moscow experienced a steep increase in prime office rents in 2011, making it the fastest-growing location in Europe, according to Cushman & Wakefield’s Office Space Across the World 2012 report. A lack of construction activity caused by economic uncertainty has seen supply levels ease in Moscow and in a growing number of markets across the globe.

“From a broad global perspective, rental rate growth has been driven primarily by modest economic improvements in an environment of limited new supply,” said Glenn Rufrano, President and Chief Executive Officer of Cushman & Wakefield.

For the fastest-growing markets, demand also improved. A rental uplift of 41% in Moscow made it the second fastest-growing city in the world - in terms of prime office rents - behind Beijing which saw a 75% jump. It also resulted in the city taking fourth position in the top 10 most expensive office locations in the world ranking, up from seventh position last year.

Mark Pollitt, Head of Moscow Office Agency at Cushman & Wakefield, said, “The outlook for 2012 remains positive, following a strong close to a number of deals in Q4 2011. Demand is driven from Russian businesses, especially from the IT and Telecoms sectors, making strategic expansion and consolidation decisions. Demand for the most expensive prime buildings could be more subdued this year with a possible delay in decision-making for international companies.”

Office markets in Europe’s principal cities held up well in 2011, with an overall increase of 2% across the continent. The Nordic countries performed particularly strongly aside from parts of Denmark. Prime office rents in Stockholm’s Birger Jarls Gatan district rose by 9.5% in 2011, making it the fourth fastest- growing location in Europe. This was followed by Gothenburg’s CBD submarkets where rents increased by 9%. In Norway, rents in Oslo were up 15% and in Helsinki, Finland there was a rental uplift of 12%.

Magnus Lange, Managing Partner - Stockholm, Cushman & Wakefield, commented, “The most important factor behind the rental growth in the Nordic markets is the strength of the general business climate. Companies in the most office-intensive sectors, such as banks, law firms and accounting companies, are profitable and expanding. In central Stockholm, a low level of new construction in recent years has limited the availability of modern space in the inner city, which has also played a key role driving rents.”

Europe’s cities with largest prime rental growth 2011

	Location	Submarket	Rental change
1	Moscow	CBD	41.18%
2	Oslo	CBD	15.15%
3	Helsinki	CBD	12.00%
4	Stockholm	Birger Jarls Gatan	9.52%
5	Gothenburg	CBD	9.09%
6	Aarhus	CBD	9.09%
7	London	West End	7.89%
8	Brussels	Quartier Leopold	7.55%
9	Antwerp	Centre	7.41%
10	Warsaw	CBD	6.12%

Source: Cushman & Wakefield 2012

The only Western European countries which recorded a rental fall in 2011 were the so-called “PIIGS” countries. Portugal registered a drop in prime office rents in Lisbon (-3%), while there was a rental decline of -10% in Dublin’s International Financial Services Centre. In Greece, rents in Athens dropped by -14%, and in Spain, there were rental declines in Madrid (-4%) and in Barcelona (-5%). In mild contrast, Milan in Italy fared slightly better with a -2% drop.

James Meikle, Head of Office Space Milan at Cushman & Wakefield in 2011, said, “Despite continued economic and political uncertainty in Italy, the Milan leasing market for Grade A space performed relatively well during 2011. This was mainly driven by a relatively high number of larger (>5,000 sqm) transactions, where corporations have taken new space; usually as part of a larger consolidation or rationalisation exercise. Incentive packages on offer, especially to the larger tenants, increased.

We see this trend continuing during 2012 although it should be noted that the gap between prime and secondary space is widening with poorer quality assets finding it increasingly difficult to attract the limited demand.”

Americas

Rio de Janeiro dropped in the top 10 most expensive global office locations ranking, to 8^th position from 4^th with a rental decline of -8%. However, despite this decline, prime rents in other parts of the city have continued to move up over the year. It falls behind New York, now the most costly city in the Americas. This is in contrast to Rio de Janeiro’s performance last year in which it saw a rise in prime CBD office rents of 47%. Overall, prime office rents in Brazil rose by 13% in 2011 and across the Americas, by 3%.

Mariana Mokayad Hanania, Manager Research Services, Cushman & Wakefield South America: “2011 marked another good year for the Brazilian real estate market. Robust and growing demand, together with insufficient supply, have driven up asking leases, which in some areas reached historical highs.”

The Americas’ cities with largest prime rental growth 2011

	Location	Submarket	Rental change
1	Sao Paulo	CBD	24.39%
2	Brasilia	CBD	21.33%
3	San Francisco	CBD	19.66%
4	Toronto	CBD	17.50%
5	Lima	CBD	14.29%
6	Boston	CBD	7.44%
7	Washington	CBD	7.12%
8	Montreal	CBD	6.16%
9	Portland	CBD	5.52%
10	New York	Midtown (Madison/5^th Avenue)	4.35%

Source: Cushman & Wakefield 2012

Asia-Pacific

Asia-Pacific recorded the steepest regional prime office rental increases in 2011 with Beijing experiencing the highest jump in rents globally (75%). Hong Kong maintained its position as the most expensive office location in the world for the second year running, with Tokyo in third.

Asia Pacific’s cities with largest prime rental growth 2011

	Location	Submarket	Rental change
1	Beijing	CBD	75.30%
2	Manila	Ortigas	27.78%
3	Shanghai	West Nanjing Road	27.37%
4	Singapore	CBD	24.39%
5	Chengdu	CBD	23.88%
6	Kolkata	CBD	16.50%
7	Jakarta	CBD	12.32%
8	Chennai	CBD	8.33%
9	Brisbane	Centre	8.28%
10	Seoul	Yeouido	7.36%

Source: Cushman & Wakefield 2012

Barrie David of the European Research Group, “Recovery has stalled but not been derailed by economic turbulence. Owing to the supply situation, the second half of the year should see an increase in location decisions being made. In the short term, parts of North America may recover quickly, but the ‘Gateway Cities’ across the world will remain in an undersupplied position.”

To obtain a full copy of the report visit www.cushwake.com or to arrange to speak with a Cushman & Wakefield expert, please contact Adam Weitner, Mansfield Communications at 416.844.0191/416-599-0024 ext. 238 or [e-mail]

About Cushman & Wakefield

C&W is the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 234 offices in 61 countries and more than 13,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within five primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, investment banking, debt and equity financing; Corporate Occupier & Investor Services, including integrated real estate strategies for large corporations and property owners; Consulting Services, including business and real estate consulting; and Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Centre at www.cushmanwakefield.com.

For regional analysis:

Toronto Stuart Barron 416.359.2652

Montreal Louis Borges 514.841.3819

Vancouver Hendrik Zessel 604.640.5803