Rents for commercial space will tumble next year as a flood of new office space crashes headlong into a slowing economy in 2009, according to a new report released by Cushman, Wakefield & Lepage on Tuesday.

The real estate service company said Canada will see a large amount of new office and commercial space come on the market in 2009 just as the national economy probably heads into a recession.

The result will be that rents will fall in all 11 major urban markets, including a 10 per cent swoon in Toronto and Vancouver and a five per cent decrease in Calgary, the report suggests.

"Given the anticipated slowdown in demand, new supply could have a dramatic impact on most markets in terms of vacancy and rental rate pressures in the coming year," said the report, a 25-page forecast of the commercial and office market in Canada.

Delays hurt

The problem for Canada's office sector is the lag between the period when rental rates rise and when new office buildings get built. New space often comes onto the market many months after rental prices go up.

In 2008, new construction will add only 5.7 million square feet of office space at the same time vacancy rates in many markets were low, Cushman & Wakefield said.

Toronto saw its measure of empty commercial space rise marginally to six per cent this year, up from a "tight" 5.2 per cent one year earlier. Vancouver had a vacancy rate of 2.3 per cent in the July-to-September period of this year while Calgary saw its one per cent empty level in 2007 inch up to 2.6 per cent in 2008.

By contrast, many markets will see a blizzard of new building openings with Toronto adding 4.2 million square feet to the national office inventory. Even Halifax will increase its commercial base by 5.4 per cent.

With groups such as the Organization of Economic Co-operation and Development, however, now predicting a recession for Canada in 2009, the demand for this new office space might not materialize, the study noted.

Retail closings

Specialized sectors could face even more turmoil.

Retail shopping centres started off 2008 in decent shape as rising consumer confidence in Canada appeared to give the promise of a strong year for these outlets.

Now, with individual sentiment in tatters, Cushman & Wakefield believes much of the shopping development on the books could get put on hold.

"It is reasonably anticipated that most retail expansion plans will be reassessed if not actually shelved," the report said.

The exception to this dour trend could be luxury retail developments, like the ones planned for Robson Street in Vancouver and Bloor Street in Toronto.