June 2008 VOL. 2

Investment Notes

Canada's five largest cities have posted the lowest vacancy rates in the first quarter of 2008 outranking the 10 largest central and suburban office leasing markets in North America, according to Cushman & Wakefield.

Vancouver, Toronto and Montreal saw their vacancy rates trend down through 2007, while Ottawa and Calgary trended up. The sharpest drop in vacancy was seen in central Montreal, where the year-over-year rate dropped 3.5 percentage points to 5.8 percent on strong absorption and a lack of new supply, narrowly bumping Midtown Manhattan from the top five with its 6 percent vacancy rate in the first quarter.

While Montreal has experienced years of virtual stagnation in the office leasing market, the city's slow and steady economic growth, coupled with a lack of new development over the past decade, have transitioned Montreal from a tenant's market to a landlord's market, according to Colum Bastable, President and Chief Executive Officer, Cushman & Wakefield LePage.

Toronto's vacancy rates continue to trend downward in all submarkets - and all building classes - dropping from 6.6 percent in the first quarter last year to 5.6 percent this quarter. Despite strong development activity, the suburban market (all building classes) has the lowest vacancy of the largest North American cities, at just 7.2 percent.

Despite a cooling provincial economy, Toronto continues to show strong demand and should expect continued tightening of the market before any significant new supply comes online, Bastable says. "Over 70 percent of space in the three new downtown office towers has now been booked, and we're seeing a sense of urgency from tenants trying to find suitable space."

Calgary saw the sharpest rise in vacancy, from a low of 1.4 percent in the first quarter of 2007 to 4.5 percent in the opening quarter of 2008, providing some much needed relief in that overheated market. However, Class A downtown space continues to be scarce, with just 1.8 percent vacant - up slightly from a year ago when vacancy registered at 0.6 percent.

"All of Canada's major markets are well positioned to weather an economic downturn," Bastable contends. "Years of conservative and prudent development, along with low interest rates, will work to keep supply and demand in relative equilibrium - even as the economy and demand slacken."