Metro Vancouver’s office vacancy rate to tighten further to record lows: report

Market is at a “critical juncture” with demand from global technology firms making it increasingly “a victim of its own success,” says Avison Young

Glacier Media Real Estate
February 12, 2020

The Deloitte Summit building at 400 West Georgia Street, by developer Westbank, is 84 per cent preleased as of end 2019, said Avison Young. | Image courtesy Westbank

Metro Vancouver’s already scorching-hot office market is likely to see even further tightening of vacancy rates to new record lows over the next year, according to a February 11 report by Avison Young.

Downtown office vacancy was historically low in 2019, falling to 2.6 per cent at year-end 2019 from 2.9 per cent a year earlier, reported the commercial real estate brokerage. This is likely to fall even further in 2020 to a new record low, according to the report, which will result in “upward pressure” on already high office rents.

Across the Metro Vancouver region, which has a total of 51.8 million square feet of office space, the overall vacancy rate at year-end 2019 fell to 4.4 per cent from 5.1 per cent a year earlier and 8 per cent two years previously. In mid-year 2019, it reached a record low of 4.3 per cent, but Avison Young predicted the rate would “drop significantly lower in 2020.”

Excluding Vancouver proper, suburban office vacancy slipped to 6.2 per cent at year-end 2019 (from 7.3 per cent a year earlier), which Avison Young described as the tightest suburban vacancy on record since the company started tracking it in 1997.

Avison Young said in the report, “Metro Vancouver’s office market reached a critical juncture in 2019 as demand from global technology firms took root and reshaped not only the scale and design of the next wave of downtown office towers, but also highlighted the range of economic, social and political impediments contributing to a region that increasingly appears to be becoming a victim of its own success.”

Downtown Vancouver is expecting more than five million square feet of new office space to be built by 2024, which is either under construction or in the development permit process – the largest office construction cycle in the city’s history. However, approximately 61 per cent of the downtown space that is currently under construction (3.74 million square feet) and expected to be completed by mid-2023 had already been preleased at year-end 2019.

Glenn Gardner, Avison Young principal, said, “[Office] tenants will need to be proactive when addressing their lease expiry in order to ensure they can continue to meet their space requirements. There will be relief coming to the market in both existing buildings and new developments; however, this relief will not arrive until 2021 at the earliest.”

Avison Young added, “The next two years will prove to be crucial to Metro Vancouver’s transformation into a truly world-class office market as severe supply constraints across the region temporarily limit deal velocity, hamper absorption and potentially impact expansion/relocation plans of both existing businesses and those considering establishing a presence in the market. These conditions also triggered the emergence of not one but two development cycles in the downtown core – a first for the city – in order to meet anticipated demand.”

To read the full report, including breakdowns and market forecasts in different neighbourhoods and suburban areas, click here

Joannah Connolly is editorial director of Glacier Media Real Estate, Glacier Media's real estate division. Joannah writes and curates real estate news for Glacier Media's local newspaper websites, including the Vancouver Courier, Times Colonist, Prince George Citizen, North Shore News, Burnaby Now, Tri-City News and others. She also writes and oversees editorial content in Real Estate Weekly Homes, West Coast Condos & Homes, Western Investor and Glacier's special real estate publications. A dual Canadian-British citizen, Joannah has 23 years of journalism and editing experience in Vancouver and London, with a background in construction, architecture, healthcare and business media. Joannah has appeared on major local TV outlets as a real estate commentator, has moderated and spoken on various industry panels, and spent two years hosting the Real Estate Therapist talk radio show on Vancouver's Roundhouse Radio.
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