Commercial rents in key Canadian economic markets, third quarter 2020
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Released: 2020-11-19
With further easing of physical distancing measures, the gradual reopening of the economy and employment continuing to recover, commercial rents rose by 0.7% in the third quarter, following a record 1.8% (revised) drop in the second quarter.
Commercial rental market begins to recover
Nationally, commercial rents rose 0.7% from the second quarter to the third quarter, with all three building types surveyed contributing to the increase. Rents for office buildings (+1.0%) rose at the fastest pace, followed by industrial buildings and warehouses (+0.6%) and retail buildings (+0.5%).
The increase in commercial rents in the third quarter reflected the gradual ending of rent relief and abatement that began in the second quarter. The increase also coincided with an improving labour market, as more Canadians were employed in the third quarter. Real gross domestic product (August 2020) also rose for the fourth consecutive month.
Chart 1
Commercial Rents Services Price Index: Canada
Commercial rents up in seven provinces
Commercial rents were up in seven provinces and in the combined territories in the third quarter.
The recovery in the commercial rents market was led by Ontario (+2.1%), mainly driven by higher rents for retail buildings (+2.9%) and industrial buildings and warehouses (+2.3%).
Commercial rents also went up in the Atlantic provinces.
Commercial rents were unchanged in Quebec, as higher rents for office buildings (+1.5%) were offset by lower rents for retail buildings (-0.9%).
In Western Canada, commercial rents rose in Manitoba (+1.5%) and British Columbia (+0.1%), but declined in Alberta (-2.4%) and Saskatchewan (-0.3%).
In the three combined territories, commercial rents edged up by 0.3%.
Commercial rents up in most census metropolitan areas
As retail sales and wholesale trade continued to recover across the country, 10 of the 13 census metropolitan areas (CMAs) surveyed reported higher commercial rents in the third quarter.
Average rents were up across all four major CMAs, led by Toronto (+2.1%) and Vancouver (+0.6%). Commercial rents also rose in Calgary (+0.3%) and in Montréal (+0.1%).
As a result of the gradual ending of rent relief in the third quarter, office rents were up across all four major CMAs, with the largest increases in Montréal (+2.8%) and Vancouver (+2.3%).
As e-commerce and the demand for warehouse space continued to grow, the average rents for industrial buildings and warehouses rose 3.4% in Toronto, mostly coming from new leases in the third quarter.
As a portion of retail rents is pegged to retail sales, lessors of retail buildings in the four major CMAs still faced some challenges in the third quarter, with Toronto (+1.0%) reporting the lone increase.
Lessors of buildings in Edmonton reported a 6.4% drop in their rents as the prolonged weakness in the energy sector and high unemployment contributed to lower commercial rents. Rents in Saskatoon (-1.5%) were also down.
Commercial rents remain down year over year in the third quarter
Historically, the commercial rents services price index rises on average 1.6% year over year in the third quarter. Despite the 0.7% increase in this quarter, the overall index was down 0.8% nationally year over year.
Rents for office buildings rose 0.9% year over year in the third quarter, while rents for retail buildings (-1.5%) and industrial buildings and warehouses (-1.2%) declined.
Commercial rents were down in six provinces year over year, with the largest drop in Alberta (-7.1%). Ontario (+0.5%), British Columbia and New Brunswick (both up 0.3%) saw some upward movement in rents compared with the same quarter a year earlier.
Among the four largest CMAs, commercial rents for all three sectors combined rose in Toronto (+0.5%) and Vancouver (+0.1%), but declined in Calgary (-4.4%) and Montréal (-0.6%).
As e-commerce continued to take on a larger market share, retail building rents decreased year over year across all four CMAs as a result of lower sales within those buildings. As retail rents are comprised of base rents and percentage rents pegged to retail sales, a downward shift in the volume of sales results in lower rent for retail buildings.
Office building rents increased year over year in Vancouver (+3.6%), Toronto (+1.7%) and Montréal (+0.5%), but declined in Calgary (-3.0%). Calgary currently has the highest office vacancy rate in Canada as reported by the real estate company Coldwell Banker Richard Ellis Canada quarterly statistics Q3 2020 report.
A similar trend was observed for industrial buildings and warehouses, with year over year rents edging up in Montréal and Toronto (both up 0.6%), as well as in Vancouver (+0.3%), but decreasing in Calgary (-3.6%).
Canada Emergency Commercial Rent Assistance for small businesses
In April, the Government of Canada, in collaboration with provincial and territorial partners, rolled out the Canada Emergency Commercial Rent Assistance program, which is administered by the Canada Mortgage and Housing Corporation. This program lowered rents by 75% for qualifying small businesses that have been most affected by the COVID-19 pandemic. The program was available from April to October, after which date, it was replaced by the Canada Emergency Rent Subsidy (CERS), which will stay in place until June 19, 2021.
Recently, the Quebec government also offered commercial property owners a rent top-up for their Quebec properties by funding the remaining 25% of rent not covered by the federal program. The Quebec data in this release do not include Quebec rent top-up subsidies. The impact of this program, as well as those of the CERS subsidies, will be monitored and assessed once all of the information becomes available. For more information, please refer to Canada Emergency Commercial Rent Assistance for small businesses.
Revisions to the second quarter Commercial Rents Services Price Index
Data for the second quarter were revised following the incorporation of late responses and to better reflect the subsidies that respondents received.
As a result of these adjustments, the second quarter index was revised upward (from a preliminary decrease of 3.1% to a revised decrease of 1.8%). The revisions apply to all geographies and commercial sectors.
Note to readers
The Commercial Rents Services Price Index (CRSPI) measures the change over time in the net effective rent for occupied commercial building space in Canada. The estimates are produced on a quarterly basis. Prices collected are the average rents, measured in price per square foot, for a sample of commercial buildings. The price index for the industry can be used in conjunction with other service price indexes to monitor inflation and is also used by the Canadian System of National Accounts to deflate this sector of the economy.
The aggregation of retail, office, and industrial buildings and warehouses is available for 13 selected census metropolitan areas across Canada, for all provinces as well as for the combined territories. Indexes by building type are available at the national level and for the four largest provinces (Ontario, Quebec, Alberta and British Columbia) as well as for Montréal, Toronto, Calgary and Vancouver.
Net effective rent is defined as the price charged to all tenants to physically occupy space in the building each month, including any inducements, excluding all operating costs, taxes and additional rents.
To ease data reporting, the CRSPI monthly net effective rent is calculated as the monthly total net effective rent revenue, on an accrual basis, over the tenant occupied space at the start of the month for the commercial buildings in sample.
With each release, data for the previous quarter may be revised.
The CRSPI is not seasonally adjusted.
Products
A detailed methodology for the CRSPI is available in the Prices Analytical series.
Statistics Canada has launched the Producer price indexes portal as a part of a suite of portals for prices and price indexes. This webpage provides Canadians with a single point of access to a variety of statistics and measures related to producer prices.
The video "Producer price indexes" is available on the Statistics Canada Training Institute webpage. It provides an introduction to Statistics Canada's producer price indexes—what they are, how they are produced and what they are used for.
Next release
The Commercial Rents Services Price Index for the fourth quarter of 2020 will be released on February 25, 2021.
Contact information
For more information, or to enquire about the concepts, methods or data quality of this release, contact us (toll-free 1-800-263-1136; 514-283-8300; STATCAN.infostats-infostats.STATCAN@canada.ca) or Media Relations (613-951-4636; STATCAN.mediahotline-ligneinfomedias.STATCAN@canada.ca).
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