According to Jones Lang LaSalle’s inaugural Blue Chip Building Index (BCBI), 20 of the most prestigious buildings in Vancouver’s Central Business District (CBD) have a combined average vacancy rate of 2.1 per cent, less than half the vacancy rate of the entire Downtown market, which sits at 4.3 per cent. The proprietary Index, which tracks the leasing environment in Vancouver’s CBD, explains that with this low vacancy rate, tenants in the competitive Downtown Vancouver office leasing market are faced with limited options in the most desirable office towers.
“Our research confirms the challenge facing tenants seeking space in buildings within the BCBI,” said Ray Ahrens, executive vice president at Jones Lang LaSalle. “Tenants have limited options for growth or relocation, making it essential for them to develop effective cost-containment strategies. This is particularly important for tenants in high-rise office space where the vacancy rate has fallen to a low of 1.1 per cent.”
The 20 office buildings featured in the BCBI were identified using a set of criteria that included location, on-site amenities, building and floor plate size, building age, green standards, common facilities, proximity to public transportation systems, hotels, restaurants, and tenant expenses such as property taxes and operating costs.
“Tenants are showing strong demand to reside in these buildings. In fact, six of the buildings within the Index are currently 100 per cent leased,” said Ahrens, “And rental rates are beginning to elevate to the market highs of 2008. Asking net rental rates have recently reached an average of $46 per square foot (psf) per annum in the high-rise of buildings included in the BCBI and $38 psf in mid-rise office premises, surpassing the $23.90 average asking rent psf in Downtown Vancouver.”
Developers are aware of the competition for prime office space amongst tenants and are confident they can capitalize on the situation, so it is no surprise that recent announcements were made confirming new developments in the Downtown Core. These plans could add approximately 2 million square feet of new office space between 2014 and 2016.
Oxford Properties has commenced construction on a 270,000-square-foot office tower at 1021 West Hastings without any preleasing requirements, a sign of its confidence in Vancouver’s office market and local economy. Developer Bentall Kennedy has successfully preleased 50 per cent of its new development at 745 Thurlow to McCarthy Tetrault LLP and SNC Lavalin, with construction slated to start in March 2012 and a projected tenant fixturing date in the first quarter of 2015. “Tenants are welcoming the news,” according to Ahrens “as backfill opportunities will become available providing tenants with a choice of new construction or second generation premises for relocation and/or expansion.”
Barring any abrupt changes to the economy, the lack of new inventory before 2014 suggests present Downtown market conditions will likely prevail for at least another three years. Vacancy rates will continue to fall and tenants will require creative ideas to prevent their occupancy costs from rising.