How Vancouver's office vacancy rate compares with other North American cities

Aerial of Bentall Centre and Royal Centre. (Hudson Pacific Properties)

Vancouver’s office market continues to be an outlier when it comes to its persistent low vacancy rate driven by continued high demand.

Challenging economic conditions as a result of COVID-19 have sent most North American office markets several digits upwards in their vacancy rates, but Vancouver’s shift over the past year has only been slight and incremental.

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According to CBRE, downtown Vancouver’s office vacancy rate was hovering at 5.8% in the fourth quarter of 2020 — up from 2.2% in the first quarter, 3.3% in the second quarter, and 4.6% in the third quarter.

This includes almost 900,000 sq. ft. of office space that is directly vacant in the fourth quarter, up from 668,000 sq. ft. from the previous quarter. About 501,000 sq. ft. of office space has entered the sublease market from companies looking to downsize or improve cash flow, which is an increase from 438,000 sq. ft. over the third quarter. Office rental rates are also holding.

Metro Vancouver’s overall office vacancy increased to 6.2% in the fourth quarter, marking the first time it surpassed the 6.0% mark since early 2018. Most of the vacancy increases outside of downtown are attributed to two large vacancies at 1077 Great Northern Way, where MEC ended the lease on their headquarters, and five floors available for sublease at 4555 Kingsway.

402 Dunsmuir Street, Vancouver. The entire nine-storey building with 150,000 sq. ft. of office space is leased by AMAZON. (Kenneth Chan/Daily Hive)

The downtown Vancouver and Metro Vancouver vacancies are the lowest amongst major urban centres in North America. The downtown, suburban, and overall regional market vacancy rates are still within healthy territory, as a “balanced” office vacancy rate is considered to be 8% and under.

At the very start of 2020, before COVID-19, Vancouver was tied with Toronto for the lowest vacancy rate for downtown office space in the continent. The demand has been largely propelled by the expansion of tech companies, especially Amazon, and the shortage in higher calibre spaces.

“Given that there was so much demand for office space in the years leading up to 2020, we were nearing record low vacancy and had an extreme shortage of available office space,” Jason Kiselbach, the senior vice-president and managing director of CBRE Vancouver, told Daily Hive Urbanized.

“This vacancy increase in the short term signals a shift to a more balanced market. Having said that, there is still a lack of options for downtown office space in certain size categories.”

Downtown Vancouver’s total net rentable office supply is 24.2 million sq. ft., and the region’s overall total is 48.3 million sq. ft. There is 3.5 million sq. ft. of office space currently under construction in downtown and another 1.3 million sq. ft. elsewhere in the region for a total of 4.8 million sq. ft. in Metro Vancouver.

This office construction activity was largely initiated before COVID-19, but there continues to be immense interest in further office development given the strong fundamentals of local office market, especially in downtown.

Construction progress of Amazon’s new Vancouver offices at The Post, as of January 15, 2021. (Kenneth Chan/Daily Hive)

Close to half of these new office spaces entering completion towards the middle of the decade are already pre-leased. Four office developments slated for completion in 2021 are 100% pre-leased.

Several major office development proposals received their municipal rezoning approval during the pandemic, and a number of significant office proposals have also surfaced for application.

“We are expecting to see an increase in office space demand in 2021, which will lead to a subsequent decrease in vacancy rates. So far we have noticed a flight to quality trend with regards to space in AAA buildings and a demand for unique features such as views,” continued Kiselbach.

“In addition, there has been a trend in tenant demand for some suburban business parks. Forward thinking tenants will likely transact on quality space while it is available, or, low cost options in the form of sublease opportunities.”

With that said, with work-from-home still temporarily practiced for most office-based businesses, actual occupancy of workspaces has been low, hovering at about a quarter in downtown. A recent survey of companies by the Greater Vancouver Board of Trade found that seven-in-ten office-based employers do not believe the anticipate the majority of their employees will return to their office workplace until Summer 2021 or later, and only 10% of these businesses do not expect the majority to ever return.

While a complete abandonment of office-based work is extremely unlikely, businesses indicated there would be some semi-permanent changes as the pandemic’s grip begins to lift. Office employers believe there will be a lasting expansion of work-from-home policies (62% of respondents), increased reliance on digital communication tools (70% of respondents), and a reduction in office space requirements (34% of respondents).

Construction progress of Deloitte Summit at 400 West Georgia Street, as of January 15, 2021. (Kenneth Chan/Daily Hive)

On a population and office space growth percentage basis, Metro Vancouver is punching above its weight with the volume of office under construction. The region’s office construction activity accounts for about 27% of the nationwide office construction total of 18.1 million sq. ft.

The amount of new office space currently under construction in downtown Vancouver alone is comparable to:

Dallas/Forth Worth region (4.2 million sq. ft.)
Denver region (3 million sq. ft.)
Houston region (4 million sq. ft.)
Downtown Austin (3.2 million sq. ft.)
San Francisco city (4.8 million sq. ft.)
Downtown Seattle (3.3 million sq. ft.)
Downtown Bellevue (3.1 million sq. ft.).

The entirety of Seattle’s Puget Sound region is currently seeing 7.8 million sq. ft. of office construction activity.

There is 9.2 million sq. ft. of office space under construction in all of the Toronto region, with 99% of this space located in downtown. In the Montreal region, 2.7 million sq. ft. of office is in the process of being built, including 467,000 sq. ft. within downtown.

Just 389,400 sq. ft. of office space is under construction in all of the Portland region.

But most of the vacancy rates of these centres are considerably higher than what is being experienced in Vancouver. The last time Vancouver’s office vacancy rate reached the mid-teens was in the early 2000s, when downtown had a high vacancy of about 14% due to the tech burst.

Here is how Vancouver’s office vacancy rate compares with other North American downtown and urban regions, based on Daily Hive Urbanized’s compilation of CBRE data:

Downtown office vacancy rates compared (Q4 2020)

Vancouver: 5.8%
Bellevue: 6.1%
Toronto: 7.2%
Ottawa: 9.5%
Seattle: 10.0% (Q3 2020)
Montreal: 10.2%
New York City — Midtown, Manhattan: 11.0%
New York City — Downtown, Manhattan: 11.5%
Winnipeg: 11.6%
San Jose/Sillicon Valley: 11.8%
Austin: 12.0%
Boston: 12.4%
Waterloo: 13.8%
Chicago: 15.4%
Washington DC: 15.9%
Portland: 16.0%
London (Ontario): 16.4%
Atlanta: 16.8% (Q3 2020)
San Francisco: 16.9%
Denver: 17.4%
San Diego: 18.6%
Miami: 18.9%
Halifax: 19.9%
Edmonton: 20.1%
Houston: 23.2%
Dallas: 29.0%
Calgary: 29.5%

Total regional office vacancy rates compared (Q4 2020)

Vancouver: 6.2%
Waterloo: 7.7%
Ottawa: 8.7%
San Jose/Sillicon Valley: 8.9%
Seattle (Puget Sound): 10.8% (Q3 2020)
Winnipeg: 10.9%
Toronto: 11%
New York City — Manhattan: 11.3%
San Francisco: 11.9%
Boston: 12.0%
Montreal: 12.3%
San Diego: 12.4%
Portland: 13.4%
Los Angeles: 13.7%
London (Ontario): 13.8%
Denver: 15.6%
Halifax: 15.8%
Washington DC: 15.9%
Miami: 16.1%
Austin: 16.7%
Atlanta: 17.7% (Q3 2020)
Edmonton: 20.6%
Chicago: 21.5%
Houston: 22.3%
Dallas: 23.4%
Calgary: 27.0%

In Calgary and Edmonton, the combined impacts of the ongoing slump in oil prices and COVID-19 have increased office vacancies there even further.

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