Jones Lang LaSalle’s second annual Blue Chip Building Index (BCBI), a barometer of the leasing environment in Vancouver’s Central Business District (CBD), reveals that the combined average vacancy rate of the city’s 20 most prestigious office towers has dropped to 1.1 percent – an almost 50 per cent decline from the inaugural BCBI in 2011. According to the proprietary index, low vacancy combined with ongoing strong demand (1.6 million square feet of tenants currently represented in the market) may push the city’s trophy towers closer to full occupancy before new supply provides new options for tenants.
“The scarcity of space options in the city’s top 20 office buildings, and across the CBD as a whole, presents an even bigger challenge for tenants than a year ago,” said Gavin Reynolds, senior vice president in JLL’s Vancouver office. “To deal in this market requires the sourcing of creative solutions for tenants. Last month, we completed three lease transactions totaling 63,000 square feet that were not marketed (grey space) and will never be factored into vacancy rates.”
Vancouver’s BCBI vacancy rate among the lowest in Canada
The 20 premier office buildings featured in the BCBI were selected based on criteria such as location, amenities, green standards, floor plate size, access to public transportation and building age.
According to the Blue Chip Building Index:
- Eight of the city’s BCBI buildings are currently 100 per cent occupied, compared to six fully occupied buildings a year ago;
- Vancouver’s BCBI vacancy level is lower than the vacancy rate of BCBI buildings in Canada’s two largest office markets: Toronto (4.9 per cent) and Montreal (5.5 per cent);
- Calgary, with a BCBI vacancy rate of 0.4 percent, is the only major city in Canada with a lower BCBI vacancy rate than Vancouver.
In addition to the limited supply in Vancouver’s 20 trophy office towers, the vacancy rate remains low in the remaining Downtown buildings (4.4 percent).
“Due to tight supply in BCBI and other Downtown buildings, the larger tenants need to begin evaluating their options several years in advance of their lease expirations,” said Reynolds. “With the shortage of available space Downtown, renewing current leases or relocating outside the CBD are among the most viable, although not necessarily ideal options for tenants. The current conditions have triggered several early renewals in BCBI buildings and amplified pressure to do more with fewer square feet. Despite the low vacancy in the Index, global economic volatility and the increasing number of mergers and acquisitions have led to an abundance of grey market opportunities for Downtown A class tenants.”
On the horizon: expanding options for tenants
When will market conditions begin shifting in tenants’ favour? The Index suggests that the leasing environment will improve leading up to 2015, when several companies with leases of 50,000 square feet and higher will move into newly completed towers such as TELUS Garden, MNP Tower and 745 Thurlow. The confirmed projects are approximately 43 per cent pre-leased, and large users are already beginning to take advantage of the opportunity to lease space that will be vacated by tenants scheduled to move into the new crop of buildings.
“In addition to the availability of space in the city’s new developments, backfill opportunities will open up for tenants seeking space Downtown,” said Reynolds. “With the strong pre-leasing activity at downtown projects currently under construction, we expect space in the newly-opened towers to be absorbed in a timely manner. With this activity, we are already seeing a movement away from the current landlord-favourable environment as options begin to expand for tenants.”