Economic growth boosts demand for suburban office space: report
Downtown Vancouver is still the region’s premier office district but it is suburban office centres that were the hot properties at the start of this year, according to a new report from commercial realtor CBRE.
Vacancy rates in suburban office complexes fell to 8.1 per cent during the first three months of 2018, compared with 9.6 per cent in the last three months of 2017, which makes this segment of commercial real estate attractive as an investment, said Tony Quattrin, vice-chairman of CBRE’s national investment team.
“It’s (the result) of some longstanding fundamentals at play,” Quattrin said.
“The availability downtown is tight, it’s hard to get in downtown and (lease) rates are high.”
“So there are some significant rental-cost savings in moving out to the suburbs and there’s availability with a lot of buildings on or near transit,” Quattrin said.
CBRE leasing expert Luke Gibson characterized it as a “flight to quality,” with employers latching on to new buildings with good amenities and access to rapid transit, “which is really what employees are looking for.”
“What’s driving demand for suburban office space, I would say it’s been growth from all sectors of the economy,” said Gibson, with a broad base of tenants snapping up space — from tech and government to traditional engineering firms and construction-sector companies.
Gibson said that for some suburban employers, being close to SkyTrain allows them to attract a “broader range of employees” who live farther from the city centre.
Other companies such as tech firms, however, still want to be closer to downtown, but SkyTrain “is the big equalizer.”
Declining suburban vacancy rates also make suburban office real estate more attractive as an investment, Quattrin said.
CBRE’s research staff counted sales of 14 suburban office buildings in the first quarter of 2018 versus eight sales in all of 2017.
“A number of things happened,” Quattrin said.
First, there were office-property owners that had buildings they were willing to part with, coupled with new investors that saw “a lot of good value” in buying them.
CBRE did not quote sale values, but Quattrin said investors were able to negotiate prices with the potential to earn returns on their investments, which is known in the industry as yield, that are higher than other categories of commercial real estate.
Quattrin said that Metro Vancouver’s suburban markets used to have more of a supply glut because developers that were more interested in building more profitable condominium projects were required to build office space as part of their deals with municipalities.
Vacancy rates over 10 per cent were not uncommon, versus low vacancy rates downtown.
In its latest report, CBRE recorded a downtown Vancouver office-vacancy rate of 4.7 per cent, despite a recent building boom that added a half-dozen new buildings to the core market.
Now, however, that suburban glut has largely been taken up with general business expansion.