Metro Vancouver's office space market sees resurgent activity

Sep 27 2021, 9:03 pm

The office space market in Metro Vancouver has not only stabilized from COVID-19’s economic impact, but it is now seeing resurgent activity, based on CBRE’s newly released quarterly statistics for the third quarter of 2021.

The region’s office vacancy rate increased from 6.9% in the second quarter to 7.4% in the third quarter, but this is completely attributed to 604,000 sq ft of new office space construction reaching completion, which outpaced the quarter’s net absorption occupancy gains.

This includes the completion of the 25-storey office tower at 601 West Hastings Street, near Waterfront Station in downtown Vancouver, with over 200,000 sq ft of AAA office space.

There was also a quarter-over-quarter increase in downtown Vancouver’s office vacancy rate, growing from 6.6% to 7.6%. This is the sixth consecutive quarter of increases, initially onset by the pandemic, but the leasing market is deemed to be active.

As well, downtown Vancouver’s office vacancy rate of 7.6% is still the lowest amongst North America’s major city centres — a position now held by Vancouver’s downtown for several consecutive years.

And for the first time in many years, given that downtown Vancouver’s office vacancy rate was at one point as low as 1.7%, tech companies and larger firms now have the opportunity to immediately lease continuous office spaces larger than 50,000 sq ft.

Commercial landlords have also been taking advantage of the current temporary work-from-home period to renovate their properties, specifically common areas and improving amenities. These are proactive measures to attract and retain tenants as Vancouver gradually transitions towards a return to normal work.

The suburban office rate, on the other hand, saw a slight contraction in its vacancy rate — decreasing from 7.3% to 7.2%. This is the first decline since the start of the pandemic.

Despite heightened office vacancy rates, the region is still experiencing a wave of new proposals for standalone office towers or major office spaces within mixed-use developments.

But Metro Vancouver has effectively run out of industrial space, with overall availability dipping to a record low of 0.9%, which is also pushing up rents.

There are currently 6.3 million sq ft of industrial space under construction, but 74% is already pre-leased with over half of the remaining space in some stage of negotiation. Businesses in need of industrial space have few options except to secure design-build facilities for their space needs.

This level of pre-leasing, along with limited suitable industrial land supply, have left large format industrial spaces in short supply; there are no existing and available opportunities for lease over 50,000 sq ft. More new supply construction is needed to fulfill short- and long-term demand.

The region’s industrial space demand is driven by exceptionally strong growth in e-commerce, warehousing, distribution, and logistics. For instance, earlier this year, Amazon announced it would open five new additional distribution facilities in Metro Vancouver by the end of 2021, including a 450,000 sq ft distribution hub in South Richmond.

In recent years, large traditional industrial spaces have also been increasingly converted into the much-needed production and studio spaces to meet the demand of BC’s booming film and television production industry.

Kenneth ChanKenneth Chan

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