TORONTO-Canada's office markets have been resilient during and since the recession, and they continue to show relatively healthy market fundamentals, while the U.S. market remains oversupplied.

Some Canadian major markets appear to be softening, turning in less-than-stellar performances in the first half of 2013. And several U.S. metro areas have moved into equilibrium.

These are some of the key trends noted in Avison Young's Mid-Year 2013 Canada, U.S. Office Market Report, released Monday.

The annual report covers the office markets in 32 regions: Calgary, Edmonton, Halifax, Lethbridge, Mississauga, Montreal, Ottawa, Quebec City, Regina, Toronto, Vancouver, Winnipeg, Atlanta, Boston, Charleston, Chicago, Dallas, Denver, Detroit, Houston, Irvine, Las Vegas, Los Angeles, New Jersey, New York, Pittsburgh, Raleigh-Durham, Reno, San Diego, San Francisco, South Florida and Washington, DC.

Mark Rose, chair and CEO of Avison Young says the lingering effects of recession “continue to impact the American, more than the Canadian, commercial real estate markets.”

“Even though an oversupply of office space continues to weigh heavily on many US markets, we are reporting an uptick in tours and deal velocity,” Rose said. “In contrast, most Canadian markets are undersupplied—particularly in urban areas, thus escalating construction levels. Keep in mind, the Canadian market has been on quite a run, and it would not be entirely surprising to see it lose some momentum. In short, the US markets have a ways to go before reaching the level of success that Canadian markets have enjoyed since coming out of the recession.”

In the 32 Canadian and US markets that Avison Young surveyed, comprising nearly 1.4 billion square feet, market-wide office vacancy remained in double digits and unchanged in the past 12 months, finishing the first half of 2013 at 13.8%. The downtown markets on both sides of the border combined for a modest 20-basis-point increase in vacancy to settle at 11.3% during the same period, while the collective suburban rate ended 30 bps lower at 15.4%.

Rose adds: “Consistent on both sides of the border is that tenants are looking at LEED-certified buildings and environments that embrace sustainability. They are also looking to control occupancy costs in their current premises and as they move, by employing collaborative work environments and reducing the overall-square-foot-to-employee ratio. With the ongoing tenant flight to quality, look for older vacant office properties to be converted to other uses, or razed, or substantially upgraded. Once again, our brokers have been active in guiding tenants through the myriad of choices that the markets have to offer.”

According to the report, through the first half of 2013, Canada's office vacancy rate was 7.9%. By comparison, it stood at 7.1% at mid-year 2012, 7.8% at mid-year 2011 and 9.9% at mid-year 2010 – the height of the recession.

The 10.3-billion-sf U.S. office market ended the second quarter of 2013 with an overall vacancy rate of 11.7% after vacancy remained above 12% for most of 2012, the report stated. Bill Argeropoulos, vice president and director of Research (Canada) said conditions in Canada tend to favor the landlord for now.

“Limited and diminishing space options have not only created a very competitive environment for premises, and elevated rents for select properties and quality of space, but have also muted the demand levels that we have all been accustomed to during the past couple of years,” Argeropoulos noted. “Most of the markets' transactions have been renewals and/or expansions as landlords try to lock down tenants rather than lose them to the wave of new development starting later this year and into next.

“The new supply will be a welcome respite for tenants of all sizes, whether they choose to go into space that will open up as a result of tenants relocating into the new towers (as in the previous development cycle) or take advantage of the latest features offered by the new office buildings. Either way, this will be good for the markets, elevating the anemic leasing activity seen of late and, hopefully, translating into meaningful demand.”