Earlier this week, we published a forecast summary of B.C.’s residential real estate market outlook, compiling highlights of industry predictions for 2020.
So what are the various industry organizations and brokerages predicting for Metro Vancouver’s commercial real estate market in the coming year? We created a round-up of some of the key 2020 forecasts.
Although economic growth in B.C. is expected to remain modest, it is likely to outperform Canada as a whole, according to several economic forecasts. According to commercial market intelligence group CoStar’s outlook, the province is “expected to close out 2019 with GDP growth at 1.8 per cent and will likely maintain a similar level in 2020, growing by 1.7 per cent.” The Business Council of B.C. agrees, writing, “Last year the B.C. economy downshifted to its slowest expansion since the 2009 recession. Fortunately, 2020 is looking a little brighter thanks to an upswing in non-residential construction.”
In Metro Vancouver, GDP growth will be better still, predicts CoStar. “With major infrastructure projects either underway or about to begin, the economy is expected to grow by 2.0 per cent by the end of the year and 1.9 per cent in 2020… The continued expansion of the tech sector in Metro Vancouver will also play a major role in the contribution of jobs and will offset potential losses in other sectors of the economy.”
Even with total commercial and industrial sales in the region down 45 per cent through the first three quarters of last year and dollar volume off 43 per cent, to $6.92 billion, compared with a year earlier, confidence remains unshaken. “Higher employment levels in the services and manufacturing sectors are anticipated to bring an increased number of professionals to [Metro Vancouver] in 2020, ultimately supporting commercial real estate development,” said Keith Reading, director of research at Morguard.
At 2.4 per cent, Vancouver’s downtown office vacancy rate is the second lowest in North America. Metro Vancouver office vacancies are 3.8 per cent, the lowest in Canada, which has an average vacancy of 11 per cent. Vancouver also boasts some of the highest office rents.
It’s not looking like this will ease any time soon, according to industry predictions. There are six million square feet of new office space under construction in Metro Vancouver, three-quarters of that downtown, but development still lags demand, according to Altus Group.
CoStar writes, “Office-based employment is expected to grow by 8.7 per cent in 2019 before returning to an average annual growth rate of 2.6 per cent between 2020 and 2023… More and more [U.S.] firms are looking to Vancouver to open up satellite offices or by having foreign staff operate from the region.”
Its forecast goes on to say: “Vacancy across the region will continue to trend downward, while rent growth will likely reach an additional 2.0 per cent by the end of 2020, and much higher downtown. Prospective tenants will continue to have limited say in the negotiation process and will have to make do with what is available on the market... For those that have leases due for renewal, expect existing tenants to start renewal negotiations early to lock in rates.”
Jason Kiselbach, managing director of commercial brokerage CBRE Vancouver, also told the Vancouver Real Estate Strategy and Leasing Conference that the region will see higher office rents in 2020. “Local and regional operators will find it challenging to grow given the lack of available space, resulting upward pressure on rental rates,” he said.
Even the troubles seen by major Vancouver tenant WeWork are not expected to negatively affect the office market. “Vancouver is one of the top-performing markets out of all the cities that they operate in within North America,” said Kiselbach. “Our understanding is that anything [WeWork] has committed to in Vancouver they will move ahead with.”
Colliers International’s senior managing director for Vancouver, Maury Dubuque, added that Vancouver’s office real estate market is so tight that losing a large tenant in an under-construction project would likely not cause much anxiety.
Responding to the claim “retail is dead,” Neil McAllister, senior vice-president and strategist with commercial real estate firm Lee & Associates, replied, “Not in Vancouver.”
Metro Vancouver has a relative shortage of shopping venues, he noted, though the region posted an average of $3.3 billion in monthly retail sales in 2019, third-highest in Canada. With this demand in mind, nearly four million square feet of new retail development is being built or planned in Metro Vancouver.
However, retail investment is expected to continue its decline, and the growth in leasing activity, while still rising, is set to slow its pace further in 2020. But CoStar writes that there’s a good reason for the latter: “Although leasing activity is expected to decline compared to previous years, it is not reflective of a decline in demand but rather a lack of available space for lease... Overall, retail vacancy [in Metro Vancouver] is expected to remain low in 2020 while rents are forecasted to continue to grow.”
As with office space, there’s little expectation that industrial vacancy rates or rents in Metro Vancouver will ease any time soon.
CoStar writes: “Even with 4.1 million square feet of industrial space under construction in Metro Vancouver, there does not seem to be any relief in sight for tenants… Pre-leasing on product that will be delivered over 2020 is at 82.2 per cent, indicating that once new properties arrive on the market, there is little to no available space for lease.”
Vancouver’s industrial demand is being driven by last-mile logistics as online retailers such as Amazon, Walmart and IKEA build and buy up warehouse space, accounting for at least 2.5 million square feet last year, according to Avison Young, and lately by a surging film and TV industry.
Due to the hot market and high rents, the trends for strata industrial space and multi-storey stacked industrial are both set to continue into 2020, according to market experts. CoStar adds of the latter, “Unfortunately, this will not help keep rents down as it can cost up to three times as much to design and build a multi-storey industrial building.”