We’ve been reporting on Vancouver’s office boom for a while now and a recent report by Commercial real estate firm CBRE confirms that there is currently more than two million square feet of new office space under construction, majority of which is in the City of Vancouver. Most of this office space will complete in the next 18 months.
“We’ve been setting record office rental rates, but the impact of this new supply remains to be seen,” said Norm Taylor, CBRE Limited’s Executive Vice President and Managing Director of British Columbia Operations. He remains optimistic in a market that is persistently popular with investors and tenants alike.
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“The 2010 Winter Olympics elevated Vancouver to the world stage, and opened the floodgates to an influx of demand from new companies migrating to Vancouver, most notably technology companies,” said Taylor, who explained that many of the big technology players – Amazon, Facebook, Twitter, Microsoft and Sony – have since set up shop or increased their footprint in Vancouver. This demand from international technology players is offsetting slower growth in traditional, local businesses – forestry, mining and engineering.
In the Class AAA office market, vacancies continue to decline. However, with much of the office inventory more than 40 years old, owners who are reluctant to invest and upgrade their properties will likely see them sit vacant longer and rents decline.
“You’d think the new supply would cool the demand for purchasing office buildings, but it hasn’t,” said Taylor. “Demand remains strong. Investors and owner-occupiers continue to look for office buildings to buy in Vancouver’s core business district and the cap rates have been some of the most aggressive we’ve seen in the marketplace.”
International investors, who used to focus on residential real estate, are now very focused on office buildings, shopping centres and commercial property – a trend Taylor sees continuing through 2015.
In the industrial market, land scarcity remains a perennial issue. The city’s scenic topography makes it difficult to assemble land parcels that are needed for large-scale development and big projects are rarely built on a speculative basis.
The new Boundary Bay Industrial Park is located on trucking routes to the east and south, along with convenient access to the Deltaport and the airport. Phase 1, a 440,000 sq. ft. speculative development which is the largest ever built in Vancouver, is now 75 per cent leased and ahead of developer leasing assumptions. Demand for this type of project illustrates the strength of the market and the need to move quickly when unique opportunities like this arise. Phase 2 of this development consists of an additional 430,000 sq. ft. building and will begin construction in early 2015.
Because of land constraints, Vancouver is at the forefront of property redevelopment efforts. The recent zoning relaxation in the Mount Pleasant area near the Olympic Village has sparked a flurry of activity in the market. Warehouses are being quickly snapped up by investors and owner-occupiers for redevelopment into higher density uses, including office, retail and residential properties.
“Each building is now closely examined in an attempt to determine if that’s the highest and best use,” said Taylor. Industrial buildings, strip malls, auto dealers – all offer great redevelopment opportunities.
With bridges and tunnels essential to moving people and goods in a city that is constrained by mountains, rivers and the sea, infrastructure will always play an important role in Vancouver. The SkyTrain expansion to the east towards high-growth areas and the upcoming replacement of the George Massey Tunnel on the main route to the U.S. are likely to have a positive impact on the market.
“We’re always going to be geographically limited in this market,” said Taylor. “Opportunities don’t arrive very often and investors and occupiers need to pay attention when they do.”
Projects to Watch according to CBRE
Developed by Cadillac Fairview, Pacific Centre encompasses 290,000 sq. ft. of Class AAA office space and 565,000 sq. ft. of mixed-use space. Microsoft and Sony Corporation have preleased a significant portion of the office space in 725 Granville Street, while Nordstrom is the main retail anchor.
Commercial real estate firm CBRE points out that more than two million square feet of new office space is under construction and scheduled to be finished in the next 18 months.
The Exchange Office Tower
Credit Suisse’s $200-million venture into B.C. is a 31-storey speculative LEED Platinum office tower in the financial district of Vancouver. It will be the last completed building in the ongoing development cycle and is poised to accommodate the next phase of economic growth.