03/19/2009


According to a recent survey of global office occupancy costs by the property firm DTZ, Toronto fell two places to round out the top 25 most expensive office markets on an occupancy cost per workstation basis in 2008. In total, five North American cities ranked among the top 25 - New York’s Midtown, Boston, Washington DC and New York’s Downtown ranked seventh, 14th, 15th and 23rd respectively, with New York’s Downtown the only one of this group to move upward in the survey, going from 27th to 23rd place overall.

The survey, covering 114 business districts in 49 countries and territories worldwide looks at the main components of occupancy in major global markets and provides a ranking based on annual costs per workstation paying due account to the differences in space utilization in all markets. As space utilization standards per workstation differ in each business district due to local practices and culture, a comparison of the office occupancy costs based on the amount of space allocated to each employee gives a better comparison of the total costs of office occupation. The space not only takes into account the direct area used for a desk-station or a cubicle, but also common areas which the tenant/occupier has exclusive use over.

Included from Canada in this global ranking were Toronto, Calgary, Vancouver, Ottawa and Montreal.

At the top of the global leader board was Tokyo, which jumped four spots to claim the title as the world’s most expensive office market, supplanting London’s West End, which fell to fifth. Behind Tokyo were Paris, Hong Kong and Dubai. In London, the City fell from fourth all the way to 21st, reflecting both a significant decline in market rents as well as a weakening of the British pound against other major currencies.

While in many markets around the globe rising vacant space coupled with lower demand led to downward pressures in occupancy costs in 2008, Canadian prime financial core markets lagged this trend posting an average y/y increase in occupancy costs of 7.4%. Leading the pack was Vancouver with an average 13.7% increase. In this tight market, with a downtown core vacancy of 2.0% for prime space, landlord expectations remained high and renewing tenants faced sticker shock in 2008. Pressures in the Calgary market began to ease in 2008 as the influx of anticipated new supply continued to come on stream, resulting in a modest upswing in vacancy and a minimal increase in occupancy costs (1.7%), a welcome change in a market that had seen significant cost pressures in all aspects of the local economy. Occupancy costs in Toronto’s financial core increased 9.0% as vacancy remained at recent lows for prime space. However the anticipated delivery of over 4 million square feet of new supply to the downtown market in 2009-2010, combined with slowing economic conditions, will have an influence on occupancy costs for the near term outlook. Occupancy costs in Montreal increased 6.6%, despite softening demand, as the market remained in favour of the landlord while in Ottawa, financial core occupancy costs increased 5.8%.

On a global scale, when factoring in the volatile fluctuation of the Canadian currency which declined 19% against the US dollar y/y, Canadian markets posted an average decline in occupancy costs per workstation of roughly 13.4%. Toronto came in ranked 25th, down two spots in the survey with a 11.9% y/y decline in occupancy costs to USD 11,680 per workstation; Calgary came in 27th, down 9 spots with a 17.9% y/y decline in occupancy costs to USD 11,660 per workstation; Vancouver came in 44th, down 4 spots with an 8.3% y/y decline in occupancy costs to USD 9,460 per workstation; Ottawa came in 49th, down 8 spots with a 14.7% y/y decline in occupancy costs to USD 8,720; and Montreal came in 79th, down 13 spots with a 13.9% y/y decline in occupancy costs to USD 6,110 per workstation.

In the North American context, Toronto and Calgary ranked 5th and 6th overall, of the 23 North American markets surveyed, behind New York (Midtown), Boston, Washington DC, and New York (Downtown). Vancouver ranked 11th while Ottawa ranked 13th. Coming in 20th place, and one of the least expensive markets in North America was Montreal.

Against a backdrop of sluggish economic growth, the Canadian office markets are likely to see little increase in occupancy costs in 2009, with most remaining stable or seeing a gradual decrease, in keeping with what has been seen across the globe.