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| Population 472,000 | ||||
| Employment 247,000 | ||||
| Unemployment Rate 6.5% | ||||
| Retail Sales $6.2 billion | ||||
| Consumer Price Index 1.2% | ||||
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| ↑ | Office | ←→ | ||
| ↑ | Industrial | ↓ | ||
| ↑ | Retail | ↓ | ||
| Overall Cap Rates ↑ |
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| Source: DTZ Barnicke | ||||
| 2007 | 2008e | 2009f | 2010f | |
|---|---|---|---|---|
| Real GDP* | 1.8% | 1.3% | 2.4% | 2.5% |
| Population* | 0.5% | 0.5% | 0.6% | 0.7% |
| Employment* | 0.7% | -0.1% | 2.3% | 1.1% |
| Unemployment Rate | 6.1% | 6.5% | 6.3% | 6.3% |
| Personal Income per Capita | $35,196 | $35,886 | $37,318 | $38,565 |
| Total Housing Starts | 3,100 | 2,400 | 2,300 | 2,300 |
| Retail Sales* | 3.4% | 4.8% | 4.9% | 4.8% |
| CPI* | 1.8% | 1.2% | 2.0% | 2.0% |
| Source: Conference Board Canada | *Percentage Change from Previous Year | |||
Market overview
London’s economy has been on a declining trend. While GDP expanded by roughly 1.3% in 2008, slower activity in the services sector and continued weakness in the goods producing industries are having an effect. London’s manufacturing sector has been impacted by the strong Canadian dollar and exposure to the struggling North American automotive industry. Both issues point to downside risk in the near term forecast. Propping up the economy is wholesale and retail trade and non-residential construction. Looking forward to 2009, economic growth of 2.4% is forecast with an average of 2.5% per annum from 2010 to 2012.
London is a city with a proud tradition of enterprise, innovation and creativity. A great place to do business, many strategic initiatives are underway to ensure we continue to flourish - economically, socially and culturally.
Office
Economic uncertainty during 2008 resulted in a shift in demand for office product. While the overall office vacancy rate increased to roughly 14%, the trend was not consistent across all classes of product as demand for Class B space remained strong resulting in a decline in vacancy for this product class. Moving forward, overall vacancy is expected to increase marginally again in 2009 due to the ongoing trend of tenants seeking smaller more cost efficient Class B space.
Despite rising vacancy, average net rental rates rose slightly to approximately $10.55 during 2008 and are expected to remain stable throughout 2009, although tenants will impose some pressure on rate reductions. No new supply is planned for 2009, with the exception of the Westmount Mall, which is in the process of converting 50,000 square feet of retail space to office space as demand calls for it. This is a move to copy the highly successful business model of the downtown Galleria Mall.
Industrial
London’s industrial market also felt the effects brought on by the retreat of manufacturing businesses and exposure to the struggling automotive industry. While the outlook for a recovery in manufacturing in the short term is bleak, efforts have been put into place to fill the vacant industrial space with other industries, such as food processing and woodworking. Also contributing to the negative absorption is the completion of four new buildings during 2008 which brought 950,000 square feet to market, including two buildings built on spec by ING Real Estate and by O.R.E. Development. Given that these spec buildings did not meet their target occupancy levels, it is unlikely there will be any new completions in 2009.
The vacancy rate increased 230 basis points to 9.8% but, despite the increase, rental rates also increased $0.30 to around $5.45. In this tenant market, it will prove difficult for landlords to maintain these rates, particularly landlords of older space, situated far from major highways, and offering product with less than 24 foot clear height.
Investment
The investment market remained active in 2008 for multi-unit residential, retail with grocery anchors and high quality office space for the first three quarters of 2008, with more buyers than quality product being offered. For the balance of the year there was a significant slowdown in investment activity, as found in most markets across the country, due to tight credit availability. 2009 may see increased activity as some investors holding quality product may need to liquidate their inventory to cash rich investors.
The most active investors in 2008 were private investors, beating out many REITs in picking up highly sought after properties such as the Bell Building and the City Centre towers. Cap rates during 2008 ranged between 6% and 8%. Moving into 2009, expect cap rates to continue this upward trend.
| Office Inventory | 5.5 millions sq ft |
| Office Vacancy | 14.0% |
| CBD Class A Vacancy | 16.1% |
| Industrial Inventory | 32.5 million sq ft |
| Industrial Vacancy | 9.8% |
| Source: DTZ Barnicke and Conference Board Canada | |
Retail
Consistent growth in population and personal income is driving new retail development and expansion as some retailers are still not represented in the community. While new developments are attracting new retail concepts, and retail spending in London is expected to expand by 4.8% in 2008, the development of new retail centers, particularly big box power centers, may begin to slow in 2009 due to rising vacancies and a highly competitive environment for existing retailers.
While development activity remains quiet in the shopping mall category, big box development in northwest and southwest London continues to expand. SmartCentres recently announced two new sites for pre-leasing in south London, both anchored by Wal-Mart.