Downtown Vancouver's office vacancy rate rises to over 12%

The rooftop of the new Deloitte Summit office tower in downtown Vancouver. (Kenneth Chan/Daily Hive)

The leased office vacancy rate in downtown Vancouver continues to grow, with the ongoing impacts of semi-remote work being compounded by economic headwinds.

Based on commercial real estate firm’s Avison Young account of the 2023 second quarter performance, the vacancy rate for downtown Vancouver has grown to 12.3% as of this month — up from 11.1% in the previous quarter, and 9.6% in late 2022.

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The latest uptick this quarter is driven by a significant number of leases expiring without renewal across downtown Vancouver.

The vacancy rate relates to the leased status of the real estate property, and it should not be confused with worker occupancy rates.

While vacancy was previously typically attributed to subleasing activity, the head lease vacancy represented 76% of the total rise in vacant space downtown between April and June 2023. Analysts suggest occupiers were waiting until their leases expired before cutting back on the space, and this trend is expected to grow.

“It is expected that more head lease premises will become vacant as the year and macroeconomic uncertainty progress,” states the market update.

“The reason for occupiers waiting for lease expiry may be three-fold. First, spaces marketed for sublease with specific (often tech-based) buildouts saw limited demand in the last year. In response, tenants with similar industry-specific space layouts may not have tried to sublease their space if they did not deem it in demand. Second, there could have been restrictions from landlords on subleasing space. Third, a time lag from management may have existed as they needed to co-ordinate a strategy of office space pullback before acting.”

Furthermore, the direct vacancy as a portion of new vacant supply in downtown Vancouver has grown to 76% from 52% in the first quarter and 70% in 2022.

In the second quarter, about 600,000 sq ft of new office space downtown reached full completion and is fully leased, according to Avison Young. No completions are scheduled for the third quarter, but the fourth quarter is expected to see almost 600,000 sq ft of new office space completions — namely, the B4 tower by BentallGreenOak. This tower is almost fully leased, with Microsoft taking up the vast majority of the space.

As well, this fall, Amazon will begin to occupy the South Tower of The Post — about half of the 1.1 million sq ft of office space in the complex, which recently reached substantial completion. The South Tower will be fully occupied by early 2024, and the timeline for the company’s move into the remaining North Tower will be determined at a later date.

Unlike the separate analysis by commercial real estate firm CBRE, the Avison Young breakdown separates Yaletown into its own district, instead of including it as part of downtown.

Avison Young states office vacancy rates in Yaletown crept up to 17.3% in the second quarter, which is a new all-time high for the area. Yaletown’s vacancy trend is driven specifically by high vacancies in older office supply with unimproved space, with Class B space at a 21.6% vacancy and Class C space at a 23.7% vacancy. Together, both lower-tier classes account for the vast majority of the former warehouse area’s office supply. In contrast, Class A spaces in Yaletown have a healthy vacancy rate of just 5.9%.

For further contrast, downtown Vancouver vacancies — generally the Central Business District — have even vacancy rates across the board for all classes, with Class AAA, Class A, Class B, and Class C seeing a vacancy range of 11.5% to 13.1%.

The total real vacancy in terms of building floor area is now 3.2 million sq ft in downtown, 366,000 sq ft in Yaletown, and 810,000 sq ft in Central Broadway.

Although downtown Vancouver’s vacancy rate has crept upward, it is still among the lowest out of major city centres in Canada and the US.

Across all of the Metro Vancouver region, the vacancy rate is now 10% — up from 9.4% in the first quarter. Outside of the downtown peninsula, the Central Broadway corridor has the region’s third-highest vacancy rate of 9.4%.

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