North American Office Market Picks Up

The North American office market is moving in the right direction, according to Avison Young's Midyear Office Market Report. Declining vacancies in most Canadian and U.S. downtowns contributed to an overall lower vacancy rate in both countries. Regina, Saskatchewan, has Canada's lowest vacancy rate at 1.9 percent. The Washington, D.C., metropolitan area recorded the lowest U.S. vacancy rate at 11.8 percent.

Canadian Office Vacancy Drops 210 Basis Points

Eleven of 12 Canadian markets tracked have office vacancies "firmly in single-digit territory," according to the report. Vacancy in Lethbridge, Alberta, one of two Canadian markets to see a rise in vacancy, climbed 50 basis points to 9.7 percent. Winnipeg, Manitoba's vacancy rate shot up 200 bps to 6.9 percent, making it the only other market to experience an increase. Toronto's downtown vacancy rate plummeted 440 bps to 5.9 percent and led a nationwide 200 bps decrease in downtown vacancy. Canada's suburban market vacancy rate stands at 9.8 percent, marking a 230 bp decrease since mid-2010. The country's development pipeline also looks strong. According to the report, 8 million square feet of office space is in development and 70 percent of it is preleased.

Positive Trends in U.S. Office Market

Despite lingering concerns over the economy and employment, the U.S. office market experienced a 100 bp drop in office vacancy. Three trends contributed to the decline, according to the report. First, vacant sublease space has decreased in volume for the last four quarters. Second, net absorption has been positive for the last five quarters. Lastly, office building deliveries are declining. In addition to having the country's lowest vacancy rate, the Washington, D.C., metro area also has the most significant development activity. The area has 5.6 million sf under construction with 43 percent preleased. Chicago's office vacancy dropped 120 bp since mid-2010, making it the other U.S. bright spot in the report.