Office vacancy rate near record low, report shows
Metro Vancouver’s office market appears headed for a record-low vacancy rate, possibly dropping below figures not seen since 200708, a new report says.
Office vacancy has tightened to its lowest point since 2012 and is expected to approach the recordlow vacancies of a decade ago within the next 18 months, according to Avison Young ’s 2018 mid-year office market report.
Overall vacancy for the region fell to 7.2 per cent at mid-year, down from 9.1 per cent a year earlier, and 10.4 per cent just 24 months ago, the report said.
The market absorbed 764,911 square feet in the first half of the 2018, the second-most first-half absorption recorded since the mid-point of 2006. That figure was surpassed only at mid-year 2015 during the last wave of new office development in the city.
The situation is even tighter in the downtown core, said Glenn Gardner, a principal with Avison Young in Vancouver.
Gardner said the downtown vacancy is at five per cent. “It wouldn’t shock me if we got below three per cent,” he said. “Before we saw that economic downturn (of 2009), we were at 2.5 per cent, and it absolutely would not shock me if we got back to those numbers.”
In the 2007-08 period, the economy was doing well, he said. “The law firms were doing well, the accounting firms were doing well, the mining companies were doing well. Everyone was doing really well.”
Large U.S.-based or international tech firms are driving today’s market, he said.
“(In 2007-08) we didn’t really see a lot of the larger U.S.-based and international companies come into our market place (to) put a substantial flag in the ground like they have over the past little bit,” he said. “Quite frankly ... I think it’s going to continue to happen going forward.”
He said the two main examples are WeWork, the co-working giant, and Amazon.
“Amazon was not here five years ago,” Gardner said. “Now they’re a very substantial presence in our city and are committed to even more product that will be coming online.”
Amazon announced a deal earlier this year to occupy 416,000 sq. ft of the old Post Office building redevelopment on Georgia Street that will add 1.1 million sq. ft of office space to the existing structure.
Amazon also took 90,000 sq. ft at the Exchange Tower at 475 Howe St., according to a summary of recent deals in the Avison Young report.
WeWork is also quickly becoming one of the largest tenants in the marketplace, Gardner said, referring to the New York-based co-working space provider, which has several floors at the Bentall Centre towers among its local inventory and will also be occupying two floors at the Main Alley campus development by Westbank Corp. and Ryan Holmes of Hootsuite.
“They (WeWork) didn’t exist here two years ago,” he said.
For a tenant seeking a 10,000-sq.ft office space in a traditional tower downtown, there may be only four or five options, said Bart Corbett, an executive vice-president with Cushman and Wakefield.
“You would have had maybe 15 alternatives only about a year ago, and maybe 30 two years ago,” he said. “It’s just simple supply and demand. There’s been no significant supply added to the market other than the Exchange Tower in the last two years and demand has exceeded expectation across the board, predominantly in technology and digital media.”
But relief is coming. More than 4.3 million sq. ft of downtown office space is expected to be delivered to the market by the end of 2022, representing a 19 per cent increase to the current downtown office inventory, according to Avison Young. Corbett agreed with Gardner that Vancouver is welcoming different tenants now than it did 10 years ago.
“There’s such a larger component of our office demand now that are technology-related tenants,” he said, also referring to WeWork and Amazon.
Corbett said the next two years will be challenging for tenants looking to expand or set up shop here. “We’re not going to see much change unless there is some major economic event that occurs where companies are beginning to give back space to the market,” he said.
Tenants need to be prepared for a tough 24 months while the new supply comes online, he said.