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Follow on Google News | Avison Young releases Mid-Year 2013 Canada, U.S. Office Market ReportOngoing improvement in U.S. commercial real estate market, tight market conditions in major Canadian downtown office markets
By: Avison Young http://www.avisonyoung.com/ Many major U.S. markets remain oversupplied, with tenant-favoured conditions – even while tours and velocity have increased and several metro areas have moved into equilibrium. These are some of the key trends noted in Avison Young’s Mid-Year 2013 Canada, U.S. Office Market Report The annual report covers the office markets in 32 regions: Calgary, Edmonton, Halifax, Lethbridge, Mississauga, Montreal, Ottawa, Quebec City, Regina, Toronto, Vancouver, Winnipeg, Atlanta, Boston, Charleston, Chicago, Dallas, Denver, Detroit, Houston, Irvine, Las Vegas, Los Angeles, New Jersey, New York, Pittsburgh, Raleigh-Durham, Reno, San Diego, San Francisco, South Florida and Washington, DC. "In the United States, the lack of clarity that existed prior to the Presidential election unfortunately continues, and jurisdictions await the impact of higher taxes, sequestration, mandated spending cuts, and Obamacare. The March effective date, versus the January 1st date written into the Budget Control Act of 2011, also means that the impact horizon will stretch into 2014, and most likely beyond," comments Mark Rose, Chair and CEO of Avison Young. "The lingering storm clouds continue to impact the American, more than the Canadian, commercial real estate markets. Even though an oversupply of office space continues to weigh heavily on many U.S. markets, we are reporting an uptick in tours and deal velocity. This will help move more metro areas into equilibrium, if they have not already. In contrast, despite moderating demand levels and modest shifts in vacancy, most Canadian markets are undersupplied – particularly in urban areas, thus escalating construction levels. Keep in mind, the Canadian market has been on quite a run, and it would not be entirely surprising to see it lose some momentum. In short, the U.S. markets have a ways to go before reaching the level of success that Canadian markets have enjoyed since coming out of the recession." Rose adds: "Consistent on both sides of the border is that tenants are looking at LEED-certified buildings and environments that embrace sustainability. They are also looking to control occupancy costs in their current premises and as they move, by employing collaborative work environments and reducing the overall-square- In the 32 Canadian and U.S. markets that Avison Young surveyed, comprising nearly 1.4 billion square feet, market-wide office vacancy remained in double digits and unchanged in the past 12 months, finishing the first half of 2013 at 13.8%. The downtown markets on both sides of the border combined for a modest 20-basis-point (bps) increase in vacancy to settle at 11.3% during the same period, while the collective suburban rate ended 30 bps lower at 15.4%. "While many major U.S. markets remain oversupplied with conditions favouring the tenant, the same cannot be said about Canada, especially in the country’s major downtown markets, where conditions tend to favour the landlord – for now," points out Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young. "Limited and diminishing space options have not only created a very competitive environment for premises, and elevated rents for select properties and quality of space, but have also muted the demand levels that we have all been accustomed to during the past couple of years. Most of the markets’ transactions have been renewals and/or expansions as landlords try to lock down tenants rather than lose them to the wave of new development starting later this year and into next." Argeropoulos adds: "The new supply will be a welcome respite for tenants of all sizes, whether they choose to go into space that will open up as a result of tenants relocating into the new towers (as in the previous development cycle) or take advantage of the latest features offered by the new office buildings. Either way, this will be good for the markets, elevating the anemic leasing activity seen of late and, hopefully, translating into meaningful demand." The 10.3-billion- "After years of uneven recovery, we continue to have a handful of standout markets, with many U.S. markets remaining oversupplied. We anticipate vacancy will stay on its downward trajectory through year-end 2013," states Earl Webb, Avison Young’s President, U.S. Operations "Gateway markets and those with a concentration of energy, technology or healthcare industries have been at the forefront of performance, but improvement should begin to broaden this year." Looking at Avison Young markets, vacancy rates remained in the double digits at mid-year 2013, with an overall average vacancy of 14.7%, down slightly from 14.8% at mid-year 2012. Nevertheless, 16 of the 20 Avison Young markets reported lower vacancy rates when compared with 2012. Class A rents averaged $48 psf and $27 psf (USD) for central business district (CBD) and suburban markets, respectively. San Francisco again saw a significant increase in CBD class A rent this year, ending the second quarter of 2013 at $52.50 psf, an 11.7 % increase from the second quarter of 2012. This rise follows a remarkable 18% spike in rents between the second quarter of 2011 and the second quarter of 2012. The highest average CBD class A rents currently are in New York, where the $64-psf rate was a 2.3% increase compared with 2012; and in Washington, DC – a 1.3% change at $56 psf. In Charleston, the office market is heating up and rising rental rates reflect that situation. Downtown rents climbed to $35 psf from $31 psf (+13%) and suburban rents jumped to $28 psf from $21 psf (+33%), as businesses paid a premium for preferred locations. With respect to development, there is currently more than 43 msf under construction, 72% of which is in Houston (10.6 msf), Metropolitan Washington, DC (7.8 msf), New York (7.5 msf) and Boston (5.3 msf). Webb continues: "Since the recession, traditional office users such as law, finance and accounting firms have been strategically rightsizing and seeking space efficiencies as their leases expire. I see that trend continuing for another couple of years as they seek to control occupancy costs by reducing space-utilization ratios." End
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