After more than a decade of stagnation in Canada's office market, companies are poised to start demanding more space, and that will require construction equivalent to 16 new 50-storey towers within five years, says a study.

Real Estate firm CB Richard Ellis Ltd. says about 16.4 million sq. ft. of new office space will be required between now and 2010. Developers currently have plans to build offices totalling 6.2 million sq. ft. in Canada's 10 largest markets.

"Few new office towers have been added to inventory in most markets in the past decade, and demand will begin to outstrip the available supply in the foreseeable future,'' said Blake Hutcheson, president of CB Richard Ellis.

He expects developers will start taking up the supply challenge now as the economy expands. And about 60 per cent of the new construction will likely pop up in downtown areas, as opposed to suburbia.

"This is in sharp contrast to the 1998-2002 period when only 30 per cent of the new office construction was in downtown areas,'' Hutcheson said.

Ottawa and Winnipeg will each pick up one million sq. ft. of new space, on top of about one million sq. ft. now under construction in each city.

Cadillac Fairview Corp. recently revealed plans to build a $400-million, 48-storey office tower in downtown Toronto - the first development of its kind the city has seen in more than a decade.

Toronto's business community had long been waiting for news of a new office project after watching vacancy rates in the downtown core's top office buildings fall to a three-year low of 5.6 per cent during the third quarter of this year, from 6.1 per cent in the second quarter.

The national vacancy rate for downtown office space dropped to 9.1 per cent in the third quarter, from 9.6 per cent in the previous quarter. That was the sixth consecutive decline.

While about 1.1 million sq. ft. of office space is currently being built in Canada's most populous city, CB Richard Ellis expects a further 3.9 million sq. ft. to be added in Toronto over the next five years.

Calgary, "the nation's hottest office market,'' will keep that title with the addition of three million sq. ft., on top of the nearly two million sq. ft. already under way, the study said.

And 700,000 sq. ft. will be added to the 300,000 sq. ft. being built in Vancouver, while Montreal will see 950,000 sq. ft. on top of 450,000 sq. ft. under way.

New office towers usually take two to three years to build.

"While market dynamics could cause things to change, we expect a continuing increase in demand for office space due to strong economic growth and expected business expansions,'' Hutcheson said.

Vacancy rates for prime office real estate will continue to fall over the next five years, despite the construction, he predicted.