The U.S. and Canadian commercial real estate markets should anticipate solid performance this year, according to the newest forecast issued by Toronto-based Avison Young. However, the forecast notes that the Canadian market is in a more solid position than the U.S. market.

According to Avison Young, 2011 saw solid demand in both countries' investment markets, with a large pool of buyers driving the market in Canada while U.S. buyers focused on safe assets and avoiding risk. The new forecast notes that confidence in Canadian commercial property remains high coming off good results in 2011 and that the country's markets can anticipate ongoing improvement this year. However, progress is slower and unevenly distributed in the U.S., with recovery struggling for a foothold as caution prevails.

"2011 was a year of sporadic recovery in the U.S. with strong capital flows and historically low interest rates," notes Earl Webb, Avison Young's president of U.S. operations. "Market recovery was best seen in a handful of larger coastal markets while widespread caution persisted and many businesses deferred real estate decisions."

Across the 20 Canadian and U.S. markets that Avison Young tracks, office vacancy has trended lower, falling from 14.7% in 2010 to 13.6% in the closing months of 2011 - a 110 basis point (bps) improvement.

"The double-digit office vacancy doesn't tell the whole story, however," says Bill Argeropoulos, vice president and director of Canadian research for Avison Young. "The performance of the two countries is quite distinct when you break down the figures. While the overall office vacancy rate in Avison Young's Canadian markets in 2011 settled at a respectable 7.6 percent, the rate is nearly double in Avison Young's U.S. markets (15 percent). This is a clear sign of the different pace of recovery seen in the two countries.

"Canada's leasing markets have seen a swift recovery to the point where new development, particularly office, is either under way or announced in most markets," continues Argeropoulos. "This is quite remarkable, given that we just came through one of the worst recessions since the Great Depression - a healthy sign of confidence from both the development and the business community."

Argeropoulos also points out a gap between the industrial sectors in the two countries.

"Collectively, across Avison Young's industrial markets, vacancy declined 50 bps between 2010 and 2011, ending 2011 at 8.3 percent," he says. "Once again, Canada's market is in much better shape, displaying an overall vacancy of 4.9 percent versus 9.7 percent for the U.S."