A shortage of suitable office space has sent downtown Vancouver’s office market growth to new heights when it comes to office rents – to the extent that it has recorded the largest price increase in North America.
According to a recent report by commercial real estate broker CBRE, based on data from the first quarter of 2018, downtown Vancouver saw a price increase of 16.1%, equivalent to $47.95 US per-sq-ft. The city ranks fourth globally, just behind Durban (+21.4%), Bangkok (+16.9%), and Marseille (+16.7%), but ahead of Oslo (+15.1%) and Stockholm (+13%).
The only other North American areas that made the top 20 list of cost increases were New York’s downtown Manhattan (7th, +12.4%), downtown Toronto (8th, +12.3%), New York’s Midtown (15th, +9.8%), and Dallas (17th, +8.4%).
Downtown Vancouver’s growth rate is due to the rapid expansion of the tech industry, resulting in a lack of supply. This shortage was already reflected last year when downtown Vancouver’s office vacancy rate became the second lowest market in North America.
While new major office developments are either in planning or construction stages, the much-needed new supply from the current office boom will not begin to arrive until the early-2020s.
“This increase in rental rates means local tenants and businesses will need to look ahead and budget respectively for the next three years when new supply will begin to provide some relief,” said Norm Taylor, Executive Vice-President and Managing Director for CBRE Vancouver.
“For investors, these increases offer a great opportunity because we expect rental rates to continue to increase as demand shows little sign of retreat and there is no new supply expected until 2021. We have a robust office market that is short on supply, heavy on demand and a strong provincial economy. The fundamentals are solid for investors buying office buildings in Vancouver.”
One Canadian city, Calgary, made the top 20 list for the largest decreases, with the Albertan city seeing its suburban rates fall by -4.1%.
But the highest rent growth rates, of course, does not equate to the highest prices. Various districts in Hong Kong, London, Beijing, New York, Tokyo, and New Delhi dominate the top 10 list, with Hong Kong’s Central district topping the list with $306.57 US per-sq-ft – over $70.00 US per-sq-ft more than the second place district – London’s West End.
In contrast, the rents for downtown Toronto, which are still the highest in Canada, are considerably less at $56.24 US per-sq-ft, and downtown Vancouver sits at $47.95 US.
Downtown areas in Calgary and Montreal saw rates of $34.44 per-sq-ft US and $35.34 per-sq-ft US, respectively.
No Canadian city made the top 50 list of the most expensive office rents.