CALGARY — Calgary is listed 46th in the world for most expensive office markets in a report by commercial real estate firm CBRE Limited.
The company’s Prime Office Occupancy Costs report placed Calgary’s downtown second in Canada to Toronto’s downtown.
The Global 50 Index listed the world’s most expensive markets based on occupancy costs in United States dollars per square foot per year as of the first quarter of this year.
Calgary’s cost was $65.36. Toronto was $71.16. Vancouver placed 49th overall at $63.73.
CBRE listed the following as the most expensive markets in the world: Hong Kong (Central), $248.83; London-Central (West End), $220.15; Tokyo, $186.49; Beijing (Jianguomen-Central Business District), $180.76; and Moscow, $171.53.
“Canada’s economic expansion has not been immune to external shocks from trade and financial markets,” said the CBRE report. “More moderate U.S. growth and a sharper European recession have led to slowing economic activity this year.
“About a third of Canada’s output is exported, with the majority (three-quarters) destined for the U.S. Adjusted growth expectations for Canada have been downwardly adjusted to only 2.0 per cent in 2012 and not much higher in 2013.”
CBRE said four key themes characterize the most expensive prime office markets: they are increasingly located in dynamic markets across the emerging economies; they are in markets with a diversified economic base; they are increasingly located in the urban centres; and the lack of available supply and lack of contiguous space are two key drivers of higher occupancy costs.
Meanwhile, in another report, CBRE said investors are still hungry for income-producing real estate despite lower capitalization rates across almost all geographies and property types in Canada.
The company’s Second Quarter Canadian Cap Rate Survey said the national average cap rate fell to 6.33 per cent in the quarter from 6.46 per cent in the last quarter.
“This is the lowest level on record and trumps the previous low of 6.48 per cent which was reached in the second quarter of 2007,” said the report. “In an era of ultra-low interest rates, investors are prepared to pay up in order to secure a steady income stream, especially where there is the potential to increase rents as leases expire.”
Capitalization rates are calculated by dividing net operating income produced by an asset and the asset’s current market value.
Cap rates for Calgary in the second quarter were: Downtown office AA, 5.25 to 5.75 per cent; Downtown office A, 5.75 to 6.25 per cent; Downtown office B, 6.75 to 7.25 per cent; Suburban office A, 6.00 to 6.50 per cent; Suburban office B, 6.75 to 7.25 per cent; Industrial A, 5.75 to 6.25 per cent; Industrial B, 6.50 to 7.00 per cent; Retail Regional, 5.00 to 5.50 per cent; Retail Power, 5.50 to 6.00 per cent; Retail Neighbourhood, 5.75 to 6.25 per cent; Retail Strip, 6.25 to 6.75 per cent; Retail Strip (non-anchored), 6.75 to 7.25 per cent; Apartment High Rise A, 4.50 to 5.00 per cent; Apartment High Rise B, 5.00 to 5.50 per cent; Low Rise A, 4.50 to 5.00 per cent; Low Rise B, 5.00 to 5.50 per cent; Hotel Downtown full-service, 6.75 to 7.75 per cent; Hotel Suburban limited-service, 9.00 to 10.00 per cent.
“Our latest survey shows that downward pressure is evident in pretty well all markets and asset classes across the country,” said Ross Moore, Canadian director of research for CBRE. “Cap rates are now generally back to 2007 levels.”
CBRE said competition for quality real estate remains elevated in the country.
“It may be difficult to believe that cap rates could fall much further, but with interest rates set to stay low for the foreseeable future, it is conceivable that cap rates may indeed go even lower,” said CBRE.