A recently released report by CBRE forecasts the office vacancy rate within downtown Vancouver will drop to a new all-time low of 1.7% in 2020. This is down from 2.3% in 2019 and 3.8% in 2018.
Pent-up demand and a lack of supply will send the net asking rent for Class A office space to $47.68 per sq. ft., up from $44.98 per sq. ft. in 2019 and $37.20 in 2018.
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This year, the downtown Vancouver market will add 810,000 sq. ft. of office space, up from 20,000 sq. ft. in 2019 and 260,000 sq. ft. in 2018.
While there is currently an office building boom in downtown Vancouver, with about five million sq. ft. underway, these projects are already 57% pre-leased, and they are mostly set for completion over the next two to five years, which does not provide interim relief.
“This near record setting wave of development will not provide significant relief to the city’s historically low vacancy rates in the new year. It is expected that continued tightness should support rent growth in both sectors in 2020,” reads the report, which does not consider the quickly evolving global and economic crisis as a result of the possible coronavirus pandemic.
The suburban market fairs better, with a higher vacancy rate forecast of 4.4%, but this represents a narrowing vacancy compared to previous years. In the suburbs, there will be 350,000 sq. ft. of new office space completed this year — an increase from 50,000 sq. ft. in 2019 and 720,000 sq. ft. in 2018. The overall regional office vacancy rate forecast is 3%.
Another commercial space sector that cannot keep up with demand is industrial, of course. The region is expected to have an industrial availability rate of 2.4% in 2020, consistent with the last two years. Net industrial absorption this year will total 4.81 million sq. ft. against 4.98 million sq. ft. of new supply.
With retail space, CBRE expects a new supply growth of 890,000 sq. ft. this year — up from 480,000 sq. ft. in 2019 and 460,000 sq. ft. in 2018.
For hotels, the total guest room inventory for 2020 is expected to be 24,502 rooms, which is a marginal increase from the 24,281 rooms in 2019 and 24,234 units in 2018. The occupancy rate over the last two years hovered at 80%, but this is now unlikely to continue for 2020.
As for investment forecasts, $9 billion is expected to be expended in 2020, including $2.5 billion for office, $2 billion for industrial, $1 billion for retail, $1.5 million for multi-family residential, and $2 billion for land. All of these subsectors will see higher investment levels compared to 2019’s levels, except for office, which saw $2.578 billion last year.
“We’re seeing a growing number of institutional investors partnering with local owners in Vancouver,” said CBRE Vancouver managing director Jason Kiselbach.
“They continue to be bullish, and we anticipate large purchases in 2020. They’re looking at our current low inventory fundamentals and potential rental rate growth as an opportunity, and we expect that they will continue to purchase industrial, office and multi-family assets, with the continued increase in rental rates and lack of supply driving further construction of new projects.”