Office Vacancy Down In Fredericton and Saint John, But Up In Region Overall
HALIFAX- Though the full impact of Covid-19 on the region’s rental office market has yet to be seen, there are some early indicators that recent downward trends in vacancy are starting to reverse.
That was one of the main findings from the latest rental market surveys completed by Halifax real estate counsellors Turner Drake & Partners Ltd. The surveys are thought to be the most comprehensive ever conducted in Atlantic Canada, with a team of trained researchers collecting rental, operating expense and vacancy data for 838 office and industrial buildings, some as small as 5,000 ft.², with an aggregate rentable area of over 40 million ft.².
The survey found that overall, office vacancy rates were up year-over-year in four of the six major cities in Atlantic Canada and warehouse vacancies were up in half of them. Most of the changes have been relatively minor thus far. Movement in average net rental rates for office space was divided, with three of the six office markets seeing a decline and three an increase; average warehouse rents were up almost across the board, and holding steady elsewhere.
“Traditionally, recessions produce a sea change in how office space is utilised, triggering the shift from individual offices to cubicles in the early 1990s, and more recently to bull-pen style office design where space is shared collaboratively. Both represent a move to fewer square feet of office space per employee. The current recession – and its health-related root cause – is different,” said Turner Drake & Partners, in a news release.
“The rapidly executed shift to home offices will have staying power where individual businesses find the rewards outweigh the downsides. On the other hand, those workers returning to offices will need space to work at a safe distance from their colleagues. The result: a push-pull scenario where fewer companies will opt for office space, but more space per employee is required for those who do.”
In Atlantic Canada, Fredericton is out front with a 5.55 percent vacancy rate, down from 8.04 percent a year ago. The New Brunswick capital has a Class A vacancy rate of 3.80 percent, down from 3.92 percent in 2019. Saint John also enjoyed a decrease in vacancy, though it remains among the highest vacancy rates in the region, at 16.47 percent, compared to 18.26 percent a year ago. Its Class A vacancy rate is 15.55 percent.
Meanwhile, the other major Atlantic Canadian Cities saw an uptick in vacancies. Charlottetown’s office market falls in second place, at 8.35 percent vacant compared to 7.27 percent the same time last year. Class A space sits at 7.73 percent vacant, versus 6.70 percent a year ago.
Moncton’s overall vacancy rate saw the largest jump, to 12.92 percent from 7.68 percent a year ago. The Hub city’s Class A space remains relatively full, at 5.34 percent vacant, versus 3.98 percent in 2019.
Halifax had the lowest increase in vacancy overall, its rate climbed from 14.80 percent to 14.91 percent, while Class A went from 16.50 percent to 16.95 percent. St. John’s, Newfoundland has the highest vacancy rate in the region at 19.89 percent, up from 17.18 percent a year ago. Its Class A vacancy rate is a whopping 28.27 percent, up from 20.33 percent in 2019.
The survey also looked at office rental rates.
“Vacancy and the net rental rate are inversely correlated: as vacancy falls, net rental rates are expected to climb, and vice versa,” said Turner Drake & Partners. “But sometimes there is a lag between cause and effect, with both moving in the same direction, possibly as landlords lower their rents to attract tenants, and sometimes because of changing market conditions during the period”
The Atlantic Canadian office market was split between ups and downs in average rents over the period June 2019 to June 2020.
St. John’s, NL has the highest average net rental rate, at $18.19/ft², despite dropping 4.9 percent from $19.13/ft² a year ago. Class A net rents on average fell from $23.48/ft² to 22.08/ft² over the same period.
Class A rents in Halifax ticked up from $17.21/ft² to $17.78/ft², pushing the overall average net rental rate up 2%, from $14.02/ft² to $14.30/ft².
In New Brunswick, Fredericton’s overall average net rental rate edged down to $13.79/ft² from $13.84/ft², while Class A settled at $15.27/ft² versus $15.31/ft² a year ago; Moncton’s overall net rent moved from $12.84/ft² to $13.01/ft², and Class A from $14.05/ft² to $14.24/ft². Saint John fell 1.4 percent overall from $12.94/ft² to $12.76/ft², with Class A dropping from $15.83/ft² to $14.86/ft².
In Charlottetown, overall average net rents moved up 1.4% to $15.53/ft² in 2020 from $15.32/ft² in 2019, with Class A rents ticking up to $15.96/ft² from $15.92/ft².