 |
 |
 |
 |
|
| Population 155,000 | ||||
| Employment 79,000 | ||||
| Unemployment Rate 5.5% | ||||
| Retail Sales $1.8 billion | ||||
| Consumer Price Index 1.2% | ||||
|
||||
| ←→ | Office | ←→ | ||
| ↑ | Industrial | ↓ | ||
| ←→ | Retail | ←→ | ||
| Overall Cap Rates ←→ |
||||
| Source: DTZ Barnicke | ||||
| 2007 | 2008e | 2009f | 2010f | |
|---|---|---|---|---|
| Real GDP* | 2.5% | 1.7% | 1.9% | 2.2% |
| Population* | -0.4% | -0.2% | 0.2% | 0.3% |
| Employment* | 1.3% | 0.8% | 1.0% | 0.7% |
| Unemployment Rate | 5.4% | 5.5% | 5.6% | 5.5% |
| Personal Income per Capita | $35,926 | $37,080 | $38,148 | $39,381 |
| Total Housing Starts | 900 | 600 | 700 | 700 |
| Retail Sales* | 4.5% | 5.1% | 4.4% | 4.5% |
| CPI* | 1.8% | 1.2% | 2.0% | 2.0% |
| Source: Conference Board Canada | *Percentage Change from Previous Year | |||
Market overview
Kingston’s economy expanded 1.7% in 2008, a slight decline from 2007 levels. This decline was due primarily to the ongoing softening in manufacturing activity resulting from the overall strength of the Canadian dollar and a slide in residential construction caused by three consecutive years of negative population growth. Offsetting this weakness, service sector growth has been strong with job creation and income growth stimulating retail trade. Complementing the services sector has been the ongoing growth recorded in the non-residential investment and construction sector.
The economy is forecast to expand by 1.9% in 2009 and 2.2% in 2010. Some of the major projects continuing into 2009 include the $230 million Queen’s Centre and campus revitalization; $190 million budgeted for underground and roads infrastructure upgrades; $115 million Ravensview water treatment upgrade; and an $80 million investment in waterfront living. The Wolfe Island Wind Project, an 86 turbine wind farm estimated to cost $410 million, will also give the construction sector a boost.
Most of the absorption is coming from smaller R&D and knowledge based industries that are expanding or have been newly attracted to the region due to the vast amount of infrastructure and energy projects that require more engineers and consultants.
Office
Overall office vacancy increased 160 basis points to 10.3% in 2008. The rise in vacancy can be explained by a combination of decreasing space requirements as a result of corporate downsizing, consolidation and a general slowdown in business activity. Vacancy in 2009 is expected to remain on an upward trend, but at a slower rate as employment growth is expected to increase in order to support the growing investment in infrastructure and thus offset negative growth from further downsizing and consolidation in weaker sectors.
As a result of increasing vacancy, average net rental rates fell to $12.48 from $14.00 in this tenant market. Rates are expected to remain stable in 2009 as no new completions are expected. The discrepancy between rental rates and construction cost is too much for developers to justify any new construction at this time. With no new supply, companies searching for 10,000 square feet or more will find more challenges. On the other hand, smaller tenants have more options available, and some are even moving to industrial office parks where rents are lower.
Industrial
Industrial market vacancy increased 280 basis points to 14.3% due to the introduction of new supply and a decline in demand for manufactured goods in Canada, particularly in the automotive sector. Although vacancy rates have increased so too have the average net rental rates. Net rental rates increased from $6.30 to $6.85 in 2008, and are expected to remain stable throughout 2009 for newer inventory in the below 25,000 square foot range, but soften for space that is larger than 25,000 square feet.
Most of the absorption is coming from smaller R&D and knowledge based industries that are expanding or have been newly attracted to the region due to the vast amount of infrastructure and energy projects that require more engineers and consultants. The rest of the activity in the industrial market can be explained by tenants that have moved out of older and less efficient industrial space in a flight to quality.
New construction activity will slow in 2009. However, there are still several proposed developments waiting to attain significant enough pre-leasing to justify breaking ground.
| Office Inventory | 1.8 million sq ft |
| Office Vacancy | 10.3% |
| CBD Class A Vacancy | 9.3% |
| Industrial Inventory | 7.2 million sq ft |
| Industrial Vacancy | 14.3% |
| Source: DTZ Barnicke and Conference Board Canada | |
Investment
The investment market in Kingston has been divided, with stable activity for assets less than $5 million and a significant decline in activity for higher valued assets. Investment activity overall is expected to remain muted until the economic uncertainty is lifted and credit markets rebound.
Multi-residential product is the most in demand, while buyers for land and office assets have been scarce. Expect demand in 2009 to remain the same with most of the activity coming from private investors that can act swiftly on deals for quality product.
Cap rates in 2008 increased to between 9% and 10% for all asset classes, with the exception of multi-residential which maintained cap rates as low as 7.5%. Yields in 2009 are expected to remain stable.
Retail
Retail sales for 2008 increased by 5.1% over 2007 levels. Like much of the country, Q4 2008 saw a slowdown in retailers expanding or starting up due to economic uncertainty and a sentiment that the market has reached a point of saturation. The first three quarters of the year were active with retailers like Shopper’s Drug Mart vacating shopping centres for freestanding buildings and the construction of an Urban Outfitters in downtown. At the King’s Crossing Fashion Outlet and Power Centre development, which has over 105,000 square feet dedicated to fashion outlets and 545,000 square feet for other mixed uses with 26 acres available for further expansion over the next two years, retailers such as Puma, Calvin Klein and Adidas will have a presence.
Ongoing interest in outlet centres, big box developments and street level shopping will keep rental rates stable throughout 2009. However, older shopping malls will experience a decline in rates or be repurposed for office or service oriented space.