CBRE’s Q2 statistics show impact of COVID-19 on commercial real estate
Canada’s major office markets saw vacancy rates and subletting activity increase in the second quarter of 2020 while office rents dropped slightly, according to CBRE’s new Q2 2020 Quarterly Statistics Report. Meanwhile, the nation’s top industrial real estate markets powered forward, with new space coming online in time to service accelerating e-commerce demand.
CBRE’s report is the first statistical evidence of COVID-19’s impact on the commercial real estate market over a full quarter of activity. The most significant shifts were in Vancouver and Toronto. Vancouver’s downtown office vacancy rate rose to 3.3% in Q2, up from 2.2% a quarter earlier. The amount of sublet space in downtown Vancouver was up 200% from the previous quarter, with 219,000 sq. ft. of net new space put on the market in Q2. Amid an increase in amount of available space and proportion of sublease availability, downtown Class A office rents fell by $1.62 to $44.62 per sq. ft.
Similarly, in Toronto, downtown office vacancy rose to 2.7% in the second quarter, up from 2.0% in Q1. Toronto had 650,000 sq. ft. of vacant office space available for sublet, an 86% jump from the previous quarter. Downtown Class A net rents in Canada’s largest city dropped $1.53 to $35.38 psf.
“After a multi-year run of falling office vacancy and rising rents, we are witnessing the beginning of a shift in momentum. While COVID-19 has created some uncertainty in the office markets, rising sublet availability remains modest, with only a few companies adjusting to changing market conditions at this stage. The markets continue to be underscored by tight and competitive fundamentals,” noted Jon Ramscar, CBRE Executive Vice President and Managing Director. “It remains early in the trajectory of the virus to forecast its impact on vacancy and rental rates, with some markets still on lockdown, but it is clear tenants will likely have more opportunity to take advantage of longer decision-making timelines.”
CBRE’s report tells a different story about Canada’s industrial real estate, a sector that may be gaining momentum in the wake of COVID-19. Vancouver’s industrial market saw its availability rate rise to 2.9% from 2.1% in the previous quarter, but for good reason: nearly 2.1 million sq. ft. of new industrial supply was delivered in Q2 alone in response to strong demand – the most new supply Vancouver has had in one quarter in over a decade. Net absorption, representing the net change in occupied space, was a positive 393,000 sq. ft. over the quarter.
Toronto’s industrial availability rate also increased in Q2, to 2.0%, up from 1.6% in the previous quarter, partially owing to the delivery of 5.4 million sq. ft. of industrial space since the start of the year, where gains in these properties exceeded the space returned to market. Like in Vancouver, industrial net rents continue to rise in Toronto, increasing to $9.71 psf in Q2, up $1.09 from just two quarters earlier.
“Industrial real estate is a bright light in a challenging period and businesses in this sector are grateful to have new supply to support the surge in e-commerce logistics activity,” said Jason Kiselbach, Managing Director, CBRE Vancouver. “We expect demand to grow in most markets and industrial properties to come out ahead in the wake of COVID-19.”