Canada’s office space sector is facing challenges as the vacancy rate continues to rise, reaching its highest level since 1994. According to CBRE data, the overall office vacancy rate in Canada stood at 18.1% in the second quarter of 2023, which is a significant increase of 1.6 percentage points compared to the previous year. This indicates that the tough situation in office real estate is not improving, with negative net absorption for three consecutive quarters.
The rise in vacancies is evident across almost all major Canadian cities, except for Halifax, where the market has tightened recently. Calgary, in particular, entered this challenging period with a weaker position due to the impact of the oil price bust. However, Toronto has experienced the biggest deterioration, with the Greater Toronto Area (GTA) reporting a vacancy rate of 17.9%, while the downtown core’s vacancy rate stands at 15.8%. This decline can be attributed to the shift towards more flexible work patterns, potentially leading to an oversupply of office space in the sector for an extended period.
In other news, RBC Capital Markets has updated its top 30 global stock ideas list, with six Canadian stocks still maintaining their position. The changes include Associated British Food replacing Inditex, Illumina replacing CSL Ltd., and Abermarle replacing DuPont. The RBC top 30 list has been performing well, delivering a total return of 8.3% in the second quarter of 2023, outperforming the MSCI World Index at 6.8%. The top-performing stocks on the list were Meta Platforms, Palo Alto Networks, and Ferrari.
Meanwhile, Goldman Sachs’ chief U.S. equity strategist has identified a potential opportunity for investors by screening S&P 500 stocks with secular sales and net income growth greater than 10%. The largest tech stocks in the U.S. equity market have demonstrated the rewarding nature of sustained sales growth in their early stages. According to Goldman Sachs’ Rule of 10 screen, stocks with the fastest expected annual sales growth from 2022 to 2025 include ENPH, TSLA, SEDG, PANW, and NOW. Additionally, an alternative screen based on net income growth identified eight stocks that met both criteria.
In conclusion, the Canadian office space sector is grappling with increasing vacancy rates, with Toronto experiencing the greatest deterioration. On the stock market front, RBC Capital Markets’ top 30 global stock ideas list has been performing well, and Goldman Sachs has highlighted the potential for sustained growth in certain S&P 500 stocks. Investors will be closely monitoring these dynamics as they make their investment decisions in the coming months.
