Of­fice va­cancy rate near record low, re­port shows

Vancouver Sun - - FINANCIAL POST - EVAN DUG­GAN [email protected]­dug­gan.com twit­ter.com/EvanBDug­gan

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.

Ama­zon will oc­cupy one of the two new tow­ers planned for the old Post Of­fice build­ing on Ge­or­gia Street.

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