Vancouver’s commercial real estate sector has seen record volumes and revenues in the past year, with vacancy rates continuing to fall and volumes continuing to rise.
In 2021, the city’s industrial sector was the biggest story, hitting a number of new records: historic low vacancy, historic high lease rates and historic high land pricing. Investment remained incredibly resilient, and there’s still far more capital available than opportunities.
This has created a very competitive market with record pricing across all asset classes, including retail – the pandemic’s hardest hit sector. With various return to work policies in place, the office sector is now seeing a huge uptake in activity, with increases in pricing and the sub-lease market returning to a healthy balance.
Resiliency has been – and will continue to be – the dominant theme for Vancouver’s commercial real estate sector in the past year, and we will continue to see massive deals and innovation into 2022.
Here’s a quick review of the highlights from 2021 and a forecast for 2022 for each asset class:
If you walk around downtown Vancouver these days, it feels like things are bustling and back to normal. But inside the many office towers, it’s different, with floor upon empty floor. According to Colliers, just 35 per cent of businesses in Vancouver are fully back in the office, but we foresee that changing early in 2022. And while the office dynamic may have shifted for good, with flexible work-home situations being negotiated and companies rethinking their office needs, we are seeing a real reversal of fortune for the office sector in Vancouver.
The tech sector has remained a strong driver in the city. The big five tech stars – Amazon, Apple, Google Microsoft, Facebook – have committed to additional square footage in the city this year, and their growing presence promises to further transform areas like downtown and Mount Pleasant. In 2022, tech companies will continue to lease and buy more space.
One of the big changes on the horizon for the office sector is the metamorphosis of the physical space, with enhancements and more amenities being made to engage, serve and lure employees back. We will also see new office space being delivered and occupied this year, as the first in a new wave of construction completes, including PCI’s office tower at 601 West Hastings and QuadReal’s 512,000 square foot south tower at The Post.
With retail sales in Canada now surpassing pre-COVID-19 levels, after hitting historic lows during the height of the pandemic, Vancouver is now seeing a comeback in retail after a lull during 2020. Total retail sales for August, 2021, at $3.9 billion, was 16.2 per cent higher than in August, 2020, according to Colliers. When it comes to the restaurant and hospitality industry, Vancouver is recovering faster than anywhere else in the country. And although it is a slow resurgence, we are now seeing new restaurants under construction as part of larger developments, restaurants being rebranded and repurposed and capacity increasing.
We are also seeing the growth of areas boosted by the pandemic like home décor, gardening and wellness. Heading into 2022, all retail is at the cusp of a major reinvention because of the growth of e-commerce. In Vancouver – and beyond – we will see retail stores creating engaging storefront experiences and innovations in AI (artiificial intelligence) that will attract and benefit consumers.
We have seen some large B.C. retail assets transact this year such as Mayfair Shopping Centre in Victoria, and 50 per cent ownership of Guildford Town Centre in Surrey. Although Vancouver retail fell furthest, expect to see a faster comeback than anywhere else in the country.
Industrial was a standout success in 2021, with pandemic impacts only increasing demand for land and space. The past year saw yet another round of historic low vacancy rates, along with record increases in lease rates. However, with land constraints and supply shortages, some experts are predicting challenges ahead for the sector. The question now is: how sustainable is this? Can this continue? And will that price people out of the market? We’ve already seen companies having to move logistics operations to other markets like the Island and the Interior and in some cases, Calgary because there are no industrial opportunities in the Lower Mainland.
As we head into 2022, the industrial market is going to experience demand for all types of industrial space outstripping supply because 75 percent of new construction underway is already pre-committed. Pre-leasing industrial property is now a growing trend, and we hope to see municipalities like Surrey embrace innovative solutions like rezoning land for industrial. With such a resilient foundation across all asset classes, we expect 2022 to be a banner year for Vancouver’s commercial real estate sector.
Madeleine Nicholls is managing director for Colliers Vancouver