In its Real Estate Market Study published today, Newmark Knight Frank Devencore reported that the office tower boom in downtown Vancouver shows few signs of slowing. Over 2 million square feet of office space is currently under construction in the downtown district, and 4 million square feet is being built in the Greater Vancouver area. In addition, another 3 million square feet is being planned or proposed in the downtown market. At the same time, leasing activity in Vancouver’s downtown core slowed through much of 2013 as vacancy rates crept upwards and rental rates moderated. At the beginning of 2014, just over 1 million square feet of office space was available, up from 633,000 square feet a year earlier. In the first quarter of 2014, rates continued to rise and currently stand at 5.5 per cent.
“We expect that vacancy rates will continue to climb as the new office space begins to be delivered to the marketplace,” said Jon Bishop, Vice-President & Managing Principal of Devencore Company Ltd. “We also expect that rental rates, especially in older properties, will be under pressure. Because specific older Class “A” and Class “B” spaces will be vacated as tenants move into the new towers, the best deals in the months ahead will generally be landlord or building specific.”
A number of other trends are also having a major impact on Vancouver’s downtown real estate scene.
“We’re also seeing more large blocks of space returning to the market than we have in many years, and a rise in sublease space availability, Mr. Bishop said. “As a result, some landlords–particularly those who have older Class “A” and Class “B” buildings–are beginning to market their properties much more aggressively. A variety of inducements, from periods of free rent to more flexible lease terms, may be available in certain buildings that have key vacancies to fill. Finally, as has been the case in a number of other major cities across North America, more young professionals are choosing to live in or near the city’s downtown core. Consequently, companies that wish to attract and retain this skilled workforce are recognizing the advantages of locating downtown as well. This trend may help to boost the demand for downtown office space over the medium term.”
In Canada’s major cities, the combined Class “A” and Class “B” vacancy rate edged up from 4.5 per cent to 5.9 per cent in 2013. However, construction activity remains strong across the country and new towers are being built in virtually every city. The appetite for this premium space also remains strong. In most instances, space in the new towers, most of which are LEED-certified, is being fairly rapidly leased.