industrial

Bauer in Waterloo filled, Cambridge place still half empty

There is a very interesting article in The Kitchener Record this morning about the night and day differences between the Waterloo and Cambridge real estate markets for Office space, as well as industrial space. 

While many people are excited to live in the Bauer Lofts, there is also prime commercial space next door in the historic Bauer building. This space was leased very quickly, while similar space in Cambridge is still sitting empty.

Note: the vacancy rates mentioned in this article are for the commercial markets, specifically the vacancy rate for office buildings.  The residential vacancy rates remain very low in Kitchener Waterloo and Cambridge, Ontario (read: “Waterloo Vacancy Among Canada’s Lowest”)

WATERLOO REGION — To paraphrase Charles Dickens, it was a tale of two buildings.

While vacant office space was snapped up quickly in the new Bauer Buildings development in downtown Waterloo when it came on the market in the middle of last year, Cambridge Place remains half empty nearly two years after the city vacated the building for its new city hall.

The fate of the two buildings reflects sharp differences in the local office market among the three cities in Waterloo Region at the close of 2009.

With a vacancy rate of 11.5 per cent, office space is scarce in Waterloo. With a rate of 28.5 per cent, anyone looking for desk space in Cambridge can strike a pretty good deal. Aided by spillover from Waterloo, Kitchener falls roughly in between at 17.5 per cent.

Cambridge also has the smallest supply at 800,000 square feet, compared to 2.5 million in Kitchener and 2.1 million in Waterloo.

By year’s end, the office vacancy rate for the region stood at 16.5 per cent, up 1.7 per cent from the previous quarter.

Those figures were presented today during a seminar on the local commercial and industrial real estate markets hosted by Colliers International.

With “great amenities” such as the Vincenzo’s food store, the Bauer Lofts condos and ample parking of four spots per 1,000 square feet of space, the Bauer Buildings quickly attracted such tenants as CIBC Wood Gundy, BDO Dunwoody and Moxy Media, said John Lind of Colliers. “It was a real success story.”

Parking was a key factor. The Allen Square building across the road at 180 King St., with 2.5 spots per 1,000 square feet of space, still has empty space. In parking-starved Toronto, this space would be snapped up quickly, noted Dave Young of Colliers.

Meanwhile, Cambridge Place has 50,000 square feet begging for occupants. The owners may have no choice but to convert the building into other uses, said Karl Innanen, managing director of the local Colliers office.

Also swelling vacancy rates in Cambridge is an ample supply of office space along Highway 401 built prior to the recession, he said. Developers erected this space on spec, without lining up tenants beforehand.

Building conversions are another success story and a growing trend, he said. The old Lang Tannery in downtown Kitchener is being redeveloped with a mix of uses including office, restaurants and specialty retail. It has already attracted tenants such as the Digital Media Convergence Centre, Desire2Learn and the Downtown Community Health Centre. Innanen called this a “villaging of space.”

Fuelling demand for this project are key neighbours such as the University of Waterloo School of Pharmacy and the area’s designation as a future transit hub, he noted.

While Waterloo rules the office market, the opposite is true in industrial real estate. Cambridge dominates with an inventory of 30 million square feet, following by Kitchener with 21 million and Waterloo with 10 million. Waterloo is hurt by its distance from Highway 401, Innanen said.

Still feeling the effects of the recession, the industrial vacancy rate in the region nearly doubled from 4.9 per cent in 2008 to 8 per cent in 2009. While the market took a shock, with the rate still below 10 per cent, “it’s still not horrible,” he said.

Among the three cities, Cambridge has the highest vacancy rate at 8.6 per cent, followed by Kitchener at 7.6 per cent and Waterloo at 7.4 per cent.

Sometimes, one large building can skew the numbers. In Kitchener, the former Kaufman warehouse at 137 Glasgow St. remains empty. At 350,000 square feet, it boosts the rate by 1.7 per cent all by itself.

While smaller buildings have been faring well during the recession, larger ones above 25,000 square have not, victimized by the weak economy and high Canadian dollar.

industrial

Fundamentals for Canadian Commercial Real Estate Intact, say Avison Young

Avison Young just released their report researching 13 major commercial markets in Canada and the US (Vancouver, Calgary, Edmonton, Regina, Winnipeg, Toronto, GTA West/Mississauga, Ottawa, Montreal, Quebec City, Halifax, Chicago and Washington, DC.).  They look at the Industrial, Retail, Investment and Office market sectors.

"If anyone needs to be reminded, commercial real estate is a cyclical industry," comments Mark E. Rose, Avison Young’s Chair and CEO. "In our 2009 Forecast last January, we predicted one overriding theme – decision-making would grind to a halt until key metrics stabilized and new trends appeared. The dislocation in real estate lending and investing was so severe in March and April that the markets looked to be on the verge of collapse. Canada weathered the storm better than the U.S. and activity was down, but transactions were executed."

Rose continues: "Due to government intervention, the concept of distressed selling and buying did not materialize anywhere in North America. The U.S. government put money into the major banks, which in turn extended every loan they could to avoid realizing losses. The Securities and Exchange Commission watched from the sidelines and allowed the impacted lenders to postpone the inevitable."

"2010 is shaping up to be more of the same, but with a slightly positive bias," he says. "Fundamentals have firmed, decision makers are getting their sea legs back and the second half of 2010 should produce favourable comparisons to 2009. This, in turn, will drive the confidence we have been sorely missing and allow for activity to return to more normal levels. With that said, before recovery can occur in 2010, private markets must solve their own problems, even if that means capitulation; the bid and ask spreads need to narrow; and we must see job growth in North America."

According to the report, the national vacancy rate for office space in Canada is up 270 basis points (bps) to 9.0% since the close of 2008 and is poised to climb to the 10% range by year-end 2010. Markets nationwide have experienced increases in vacancy as a result of less than stellar leasing velocity, which muted overall demand levels. The two strongest markets in Canada recently, Calgary (vacancy rate +410 bps to 10.1%) and Toronto (vacancy rate +340 bps to 10.5%), turned in the poorest performances, largely impacted by the delivery of new supply. In contrast, two of the smallest markets, Regina and Winnipeg, witnessed nominal increases in vacancy, rising to 1.5% and 5.4%, respectively, from 1.2% and 4.8%.

The leasing market for industrial space was also hit hard, experiencing escalating vacancy rates on average across Canada. With nearly 1.9 billion square feet (sf) of space distributed across Canada’s 11 largest cities, the national industrial market saw its vacancy rate climb 110 bps from year-end 2008 to close 2009 at 6.3%. With the exception of Montreal (vacancy +200 bps to 8.0%) in the east, the most notable change in vacancy occurred in the western markets of Edmonton (+300 bps to 4.2%), Vancouver (+200 bps to 4.4%) and Calgary (+140 bps to 5.2%). This was tempered by the relative performance of the Ontario markets (Toronto, Mississauga and Ottawa), which witnessed marginal increases in vacancy of between 20 and 70 bps. As the industrial market continues to recalibrate, the national vacancy rate is expected to push beyond 7.0% over the next year.

Investment sales transaction volume was down 55% to $5.4 billion through the first nine months of 2009 as investor caution, a scarcity of willing lenders, and owners’ increased reluctance to sell devalued assets in the current climate proved to be barriers to the flow of transactions. Interest from foreign investors, especially the Germans, remained a key factor in the investment sales market, demonstrating Canada’s relatively strong real estate fundamentals and enduring appeal to overseas capital. This international interest, along with a surge in capital raisings and a number of notable acquisitions in the closing months of 2009 by the domestic REIT community, is perhaps a good omen of things to come.

On the retail front, consumer spending was more resilient in Canada than south of the border through 2009. While some national chains fell victim to the recession, extensive discounting by retailers attempting to lure customers was common, especially in the months leading up to the all-important holiday shopping season. Though the final tally has yet to be determined on the overall performance in 2009, the outlook for the retail market is for stability or modest growth this year.

"Opinion remains divided on the question of whether Canada’s economy will see the beginning of a sustainable recovery in 2010, or whether a further correction is to come before things start to look up," notes Bill Argeropoulos, Avison Young’s VP and Director of Research (Canada). "Notwithstanding this, Canada remains in better shape than its neighbour to the south and many other real estate markets around the world, and is poised for a more rapid recovery. Ultimately, markets are expected to rebound as the economic cycle starts its next upswing."