In Vancouver’s increasingly hot office market, downtown office vacancy is now sitting at 5 per cent, the second lowest downtown office vacancy rate in North America and the lowest it has been locally since 2013. With no meaningful new supply expected until 2021, the market is starting to see record-high lease rates, with forecasts for this year expected to exceed $75 gross per square foot per annum in new, top-quality office towers. This is all spurring greater investor demand to acquire and develop office assets. But, with competition for assets and development sites high, the key question has become where in Metro Vancouver offers the best value?
Here are CBRE Canada’s top three markets for office investment in Metro Vancouver:
Downtown: The downtown core will always be top of the list for investors. People want to live and work downtown.
With 1.2 million square feet of office space now under construction, the starting gun has been fired on the next wave of downtown development , meaning there is relief for tenants on the horizon. However, in the short-term, businesses seeking office space will see upward pressure on rents which will fuel the appetite of investors and developers for office properties.
The gap in the delivery of new supply will leave some tenants in no man’s land. Companies with leases coming up for renewal before 2021 may have little room for negotiation in what is currently a landlord’s market, meaning they will face rising rental rates and increased competition from other tenants. Today, a company looking to secure 50,000 square feet of office space downtown only has three options – all of which have active offers in play, with one dealing with multiple offers. This hyper-competitive environment will drive rental growth for owners of downtown office properties.
Mt. Pleasant / False Creek Flats: This area is a hot spot for office investors and developers for many reasons, including rising rents, new construction, large floor plates, on-transit routes, and proximity to great amenities and the downtown core. Historically, businesses with large floor plates and lower rent requirements moved from downtown Vancouver to the suburbs, but increasingly, businesses are moving into the Mt. Pleasant and False Creek Flats area.
The tech industry continues to drive job growth and fuel demand for office space in Vancouver. Of all the tenants in the market currently looking for office space, more than half are tech tenants. Many of those companies are flocking to Mt. Pleasant despite recent increases in rental rates. What used to lease at $32-$35 gross per square foot is now $45-$50 gross per square foot. With rising rents, some tenants are considering purchasing over renting which in turn has given rise to strata office sales activity in the area, which range from $900 - $1,200 per square foot for new shell office space.
Mt. Pleasant and False Creek Flats currently have 450,000 square feet of new office construction under way, which on the surface seems to provide some relief for tenants, but in reality, 52 per cent of this new supply is already spoken for by occupiers. This is a dynamic leasing environment that has attracted a sharp uptick in investment and development volumes.
Brentwood, Burnaby: The top concern for any organization today is attracting and retaining great talent. Many millennials are now beginning to start families and, as such, are moving from downtown condos to East Vancouver, Burnaby and other suburbs
Brentwood is the perfect example. This is the next hub for offices in the suburbs. With most people still driving to work, the Brentwood area has easy access to Highway 1, but for those who take public transit, it has the Brentwood SkyTrain station and associated shopping amenities of the Amazing Brentwood mall.
Since January 2017, Brentwood has seen over 5,853 residential condos developed, sold and/or currently on sale, with another 6,658 planned for construction. With this influx of new residents comes demand for services and jobs in the area, making Brentwood a very popular location for future office development.
When it comes to commercial office space the fundamentals are what matters most. Given the fact that Metro Vancouver is a desirable city to live in, with a strong diverse economy, ongoing positive net migration and a limited land base, the region will remain a healthy office marketplace in the foreseeable future, and one that offers investors real value.