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| Population 395,000 | ||||
| Employment 199,000 | ||||
| Unemployment Rate 7.0% | ||||
| Retail Sales $4.4 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* | 1.0% | 0.8% | 2.1% | 2.3% |
| Population* | -0.2% | -0.1% | 0.1% | 0.1% |
| Employment* | 1.8% | 2.7% | -1.1% | 0.8% |
| Unemployment Rate | 6.8% | 7.0% | 7.1% | 7.1% |
| Personal Income per Capita | $33,337 | $34,649 | $35,442 | $36,722 |
| Total Housing Starts | 1,100 | 1,200 | 1,100 | 1,000 |
| Retail Sales* | 3.4% | 4.6% | 4.6% | 4.6% |
| CPI* | 1.8% | 1.2% | 2.0% | 2.0% |
| Source: Conference Board Canada | *Percentage Change from Previous Year | |||
Market overview
2008 was another difficult year for the tourism and manufacturing sectors in the Region of Niagara due to the strong Canadian dollar for the first three quarters of 2008 and ongoing global competition. As a result, the economy of Niagara expanded a mere 0.8% in 2008. It is forecast that the region’s GDP will expand by 2.1% in 2009, with output growth being boosted by non-residential investment. The $500 million power plant by AbitibiBowater, the $19.5 million Welland Tunnel, and the $985 million Niagara Tunnel are currently underway and more recently the $90 million Niagara Health and Bioscience Research Complex will create jobs and give the Region of Niagara’s manufacturing industry a real boost. However, this forecast is tied to a rebound in the manufacturing sector, which if not realized will result in another year of lagging growth for the region.
Niagara's commitment to supporting business development has resulted in over $6 billion in recent capital investment proposals. Niagara is expected to remain among the growth leaders in the country.
Niagara Economic Development Corporation
Office
Office market vacancy increased 400 basis points to 18% during 2008, with negative absorption in all classes of office space. The negative absorption was due to a reduction in the space requirements of large call centres, some movement of government employees out of Niagara and into other regional offices and general corporate downsizing. On the positive side, the Royal Bank of Canada moved into 10,000 square feet of new office space in the downtown CBD and Clarica increased their occupied space and renewed for an additional five years. 2009 is expected to be a slow year for the office market, with no foreseeable new tenant additions. Any growth in the office market is expected to come from existing tenants undergoing expansion or relocation. Vacancy will likely continue to rise moderately in all office classes with the exception of Class B, which should remain stable in 2009. Net rental rates will follow suit and decline for Class A and C space, while Class B rates will remain stable. In this tenant market, rental rates are forecast to decrease by as much as 5% to 7%.
There was only one new building completion in 2008, adding 28,000 square feet to the office market, and two speculative buildings under construction which will add 46,000 square feet when completed. No additional construction is expected throughout 2009 until the market improves.
More landlords will be taking initiatives to improve the efficiency of their buildings to compete in this highly competitive market for tenants.
Industrial
The industrial market underwent a tremendous shift in 2008 with approximately 1.2 million square feet of space coming on the market due to the closing of Hayes Dana, World Kitchens, Cornelius Hot Tubs, John Deere and the relocation of GEON and Can Gro back to the US. Adding to the increase of available space is the trend of smaller companies taking advantage of low interest rates to purchase their own building. This shift in demand lifted the vacancy rate 800 basis points to 17% during 2008. Moving forward into 2009, vacancy rates are expected to continue trending upward as more companies consolidate their industrial space. As well, the sublet market is also expected to be very active in 2009 as more companies rightsize their operations.
Competitive landlords in 2009 will have to offer short term leases, high ceiling heights, below market rents, and locations near major highways in order to attract tenancy. Due to the discrepancy between rents and construction costs, new construction has been isolated to build to suit projects in industrial park infill sites for established companies.
Despite the challenges that Niagara’s industrial market faces, the region is still considered one of the most cost effective border business locations. Combined with a Canadian dollar down 20% from average levels experienced in 2008, we can expect to see the expansion of established businesses following the example of Stanpac and J. Oskam Steel Fabricators, who decided to expand their operations in Niagara in Q4 2008.
| Office Inventory | 170,000 sq ft |
| Office Vacancy | 18% |
| CBD Class A Vacancy | 14% |
| Industrial Inventory | 16.0 million sq ft |
| Industrial Vacancy | 17.0% |
| Source: DTZ Barnicke and Conference Board Canada | |
Investment
Despite escalating vacancy rates for office and industrial product, the investment market remained stable with ongoing interest for all product types, especially for quality retail plazas. Active buyers include RioCan, SmartCentres, Villarboit, Counsel Corporation and a number of smaller local buyers.
Yields remained constant, between 8.5% and 9% throughout 2008, and are expected to remain stable through 2009. The underlying problem is sourcing good investment grade product.
Retail
Big box power centres continue to dominate the growth of the retail sector, with growth along high traffic highway interchanges. Consequently, vacancies in established power centres are becoming increasingly difficult to fill as tenants move to larger and better situated locations.
Brands such as Canadian Tire, Sobeys, LCBO, Shoppers Drug Mart, Starbucks, Tim Hortons, and Williams Coffee Pubs are undergoing expansion throughout the Niagara region with new store openings.
The weakening of the Canadian dollar will have a positive impact on the retail market as Canadian shoppers will be more inclined to shop within their border. Despite the increase in local expenditures, rents are expected to decrease between 10% and 15% as vacancy rates increase with the influx of new power centres and retail re-developments.