As housing leads Canada out of recession, commercial markets continue to flounder.

Economic uncertainty and high unemployment have resulted in office vacancy rates jumping to 9.8 per cent in the fourth quarter, up from 6.7 per cent a year earlier, according to a report Thursday by CB Richard Ellis Ltd.

Analysts are looking closely at Toronto and Calgary, which comprise about half of the office stock in the country, as a looming oversupply problem tips the cities firmly into tenant territory. Low interest rates have encouraged home buyers to plow into the market, but businesses are much less confident, holding off on hiring new employees.

Toronto's vacancy rate hit 9.4 per cent in the fourth quarter, up from 6.8 per cent a year ago.

Three new buildings this year have added nearly 3.5 million square feet downtown. They are the 1.2-million-square-foot RBC Centre on Wellington St., the 1.5-million-square-foot Bay Adelaide Centre and the 780,000-square-foot Telus Tower on York St.

Commercial real estate conditions in Calgary remain the most severe, with fourth-quarter vacancy rates rising to 15.6 per cent from 6.3 per cent a year earlier.

The new supply means the core will be a tenant's market, likely for five years, according to a recent forecast by Cushman & Wakefield. The firm expects vacancies to hit 14.5 per cent by 2011.

One bright spot in Ontario remains the Waterloo region, owing to the presence of high tech and academic industries. Overall vacancy dropped slightly year over year in the fourth quarter to 6 per cent from 6.1 per cent last year.

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