Downtown Vancouver office market maintains high occupancy – Overall Metro vacancy rate lowest since 2008
Metro Vancouver’s office market has reached its lowest vacancy rate since 2008 with low inventory and strong demand, according to a report by commercial real estate company Avison Young.
The situation was most acute in downtown Vancouver, where many tenants are considering their needs well before leases are up.
“The downtown core is doing extremely well and there’s a significant amount of pent-up demand,” said Avison Young principal Darrell Hurst told The Vancouver Sun. “Typically, tenants are addressing their needs tied to when their lease expires. They’re doing this much earlier because of the lack of opportunities to grow, expand or relocate in the downtown core.”
Avison Young’s Metro Vancouver Office Market Report Mid-Year 2012 Ã¢â‚¬â€ which addressed trends in Vancouver, Burnaby, Richmond, Surrey, New Westminster and the North Shore sub-markets, representing a total of 46.4 million square feet of office space (19.6 million in the downtown core) Ã¢â‚¬â€ concluded that the overall Metro Vancouver vacancy rate dropped in the first half of 2012 to 6.7 per cent on June 30 from 7.4 per cent at the end of 2011 and 7.6 per cent on June 30, 2011.
It said that three sub-markets (Downtown, Broadway and Richmond) saw vacancy rates drop compared with mid-year in 2011, while year-over-year vacancy in the Burnaby and New Westminster markets held steady.
In downtown Vancouver, vacancy rates fell to 3.3 per cent by June 30 from 3.9 per cent at the end of 2011 and five per cent a year ago, with vacancies in top-tier offices much lower.
The suburban vacancy rate decreased to 9.6 per cent from 10.1 per cent at mid-year 2011, with Richmond recording the highest vacancy rate of 21.8 per cent.
Hurst said that downtown Vancouver is experiencing its highest-ever levels of new office construction and pre-leasing and that it’s doing so at a time of global economic uncertainty.
“The last multi-tenant office tower built in downtown Vancouver was Bentall 5 in 2002. Now, we have three new office towers under construction, with over one million square feet,” he said, referring to 745 Thurlow, Telus Garden and MNP Tower.
“Bentall 5 was built in two phases because there was not enough pre-leasing. For these three [new] buildings, they’ve barely broken ground. Approximately 50 per cent [of the space] has been pre-leased.”
Hurst, who noted Vancouver’s office market is the healthiest in Canada, does well because it’s not dependent on any one industry.
However, the report also concluded that the number of downtown projects now seeking rezoning represents a “slightly overbuild situation” that could moderate rental rate increases in a few years.
As well, the report noted, economic uncertainty remains a “key factor” in whether developers should proceed with new projects. “For now, ongoing economic volatility will contribute to an increased risk for those developments not already in the ground or without significant pre-lease commitments.”
Of that, Hurst said: “Many believe there’s a very real possibility that the European troubles could find its way to North America and impact the financial markets in the U.S. and Canada. And that could impact on our market.”
Source, Image: Vancouver Sun, Colby Fuller