This week’s top stories include how office vacancy rates held steady across Canada in the first two quarters of this year, how Australia beat out Canada to lead the commercial real estate market in transparency, how inflation fell unexpectedly to 1.4% in the month of May, how the HST will effect all condo owners, how United States home sales fell off unexpectedly last month, how Canadian April retail sales declined, how the U.S. Federal Reserve left interest rates unchanged and how Mark Carney stated that no bank should be too big to fail.
Office vacancy stays steady
According to a recent report from CB Richard Ellis, vacancy rates stayed steady across Canada’s industrial properties and office buildings through the last quarter of 2009. The vacancy rate is much higher than the same period last year with new buildings adding millions of square feet of office space in Toronto and Calgary.
The overall vacancy rate for suburban markets and downtown was 10.1% during the first two quarters of this year. During the same period last year, the vacancy rate was only 8.3%. More than 2.7 million square feet of new supply has been added to the markets this year. Tenants are now being lured out of older buildings with lower leases for quality spaces, leaving older spaces more difficult to lease.
Sublease spaces on the market were down to 19.4% of vacant space during the second quarter of 2010 after seeing a vacancy rate of 21.8% during the first quarter of this year. The decrease can be attributed to companies taking back space that they had planned to give up, now that the economy is showing signs of improvement. John O’Bryan, CBRE’s vice chairman commented by saying, “The panic of last year has largely been replaced by an extraordinary level of resiliency. We are seeing slow and steady improvements as nearly all of the office markets are at or near their bottom and positioned to move in a more positive cycle.”
Australia leads commercial market
Australia recently moved to the top spot on a global survey of the most transparent commercial real estate markets in the world. Canada was forced to give up its title as the transparency index pushed Canada out of the top spot.
Jones Lang LaSalle’s Global Real Estate Transparency Index is performed every two years since it’s inception in 1999. It looks at transparency in the real estate market for 81 countries. It measures debt levels, the accuracy of listings and the predictability of the bidding process. Although Canada does not lead the pack, it is still considered to be one of the best safe havens for investors worldwide.
The report stated, “Among the world’s most transparent real estate markets, Canada differentiates itself on having a combination of a sound banking system, well developed commercial real estate lending standards and stable property markets with relatively low vacancy and rental volatility.” The top rankings are still quite similar to the ones seen two years ago with only 1% separating Australia, Canada, the United States, Sweden and New Zealand.
Inflation falls
Year to year increases in gasoline prices have begun to moderate and caused Canada’s core inflation rate to fall to 1.4% last month. According to an inflation report released on Tuesday by Statistics Canada, it seems that there is not much that the Bank of Canada (BoC) will have to worry about when making its key decision on interest rates next month.
The BoC watches the core inflation index closely, which declined to 1.8% and is below the bank’s desired target of 2%. May inflation numbers will provide BoC Governor Mark Carney no concerns about prices and inflation getting out of hand. On a month to month basis, Canadians paid 0.3% more for goods in May than they did in the month of April.
Gasoline prices are also closely watched as they have been responsible for skewing the inflation rate across Canada for the last two years. Statistics Canada stated that gasoline prices were still 6.2% higher when compared to the same time last year. On a monthly basis, gasoline prices were 0.5% less in the month of May than they were in April.
HST to effect condo’s
Condo fee’s are not subject to the HST but condo owners will still be hit by the new tax. Once building managers have taken the time to go through their financial statements and figured out the added costs of the HST, condo owners will definitely know how hard they are being hit.
Starting on July 1, condo corporations in Ontario and British Columbia will start paying HST on expenses like snow removal, lawn care, service calls and, in Ontario, electricity and heating. Even though there is no HST on resale homes, the services associated with closing a property deal, including the real estate agents commissions, home inspections fee’s, legal fee’s and moving costs, will all be hit with the HST in Ontario.
The Ontario Real Estate Association has stated that the Harmonized Sales Tax could add roughly $2000+ in new tax for a resale house priced around $360 000. Although there has been information released on the new tax, many don’t understand all the different implications of a value added tax. Until most people receive their bills outlining the new tax, they don’t have a clue on what will be taxed and what won’t.
U.S existing home sales weak
A delay in processing mortgage applications caused sales of previously owned U.S. homes to fall unexpectedly last month. According to the National Association of Realtors, existing home sales dropped 2.2% to an annual rate of 5.66 million units in the month of May.
The decline caught many economists and real estate agents off guard given the fact that pending home sales rose in the month of April. Pending home sales generally lead resale’s by at least a month or two. Weak home sales are expected to contribute to a slowing in the economy’s recovery from the worst economic downturn since the 1930′s.
Celia Chan, senior director at Moody’s Analytics in West Chester commented by saying, “The fact that pending home sales have been trending upward suggests that perhaps closings are taking longer than expected. Still, tight lending is slowing the mortgage approval process and this may also be slowing the flow of home sales that are closing.”
April retail sales drop
The month of April saw a steep drop in retail sales across the country as Canadian shoppers were less active than expected. Retail sales were down 2% to $36.2 billion in April, after witnessing almost the same gain in the month of March, according to Statistics Canada.
The decrease was much larger than previously forecasted by economists before the release of the report. Statistics Canada stated that 10 out of 11 retail subsectors, across all provinces, reflected declines in the month of April. The only subsector to register a gain was appliance and electronic stores, where sales were up 0.6% overall.
Some of the largest declines were seen with new car dealers who took a 5.3% hit and clothing and accessories stores who took a 5.2% hit. Retail sales declined for a third consecutive month at furniture and home furnishing stores, dropping 0.3%. Are we becoming penny pinchers again? What do you think? Please comment below.
Feds leave rates unchanged
Ben Bernanke, head of the U.S. Federal Reserve, has acknowledged that there are significant cracks in the economic recovery, which pressured the Feds to keep the central banks overnight lending rate unchanged. These cracks include but are not limited to disinflation, a decline in housing starts, high unemployment and the European debt crisis.
The decision to leave the central banks key interest rate unchanged at 0.25% was not unexpected. The Fed’s policy making committee made a statement, “Financial conditions have become less supportive of economic growth on balance.” The Fed is in a tough position with disinflation staying on the top of everyone’s mind while unemployment remains at extremely high levels. It would be difficult for the Feds to justify raising interest rates.
No bank to big to fail
The head of Canada’s central bank believes that the time where financial institutions are too big to fail has passed. Bank of Canada (BoC) Governor Mark Carney stated that countries need to find an orderly way to let failing banks stumble, then work to contain the damage, rather than trying to bail out institutions at all costs.
Carney stated, “We have to create a system where individual financial institutions can fail. It is not politically acceptable, nor in the spirit of the market that there is a broad range of institutions that: heads they win, tails they win.” His comments were made on Wednesday at a gathering of the G20 that are set to discuss global banking reforms this weekend.
Canada is heading the Toronto summit opposing the bank taxes put forward by European nations to pay for recent bailouts and backstop failures in the event of a future crisis. Canadian banks managed to come out of the crisis virtually unscathed due to higher capital reserves on hand and different reforms across Canada. Carney went on to say, “We don’t view it as a central issue4. We’ve been campaigning hardest on what’s most important – it’s capital liquidity, its market infrastructure, it’s how you resolve a failing institution.”
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