Major institutional investors are boosting their presence in Metro Vancouver's increasingly attractive commercial real estate sector, as office and industrial vacancy rates tighten and lease rates increase, according to CBRE.
The global commercial real estate firm issued its national market outlook February 25, which predicted there is “no relief in sight” for vacancies in Metro Vancouver’s office and industrial sectors.
Downtown Vancouver’s office sector is particularly tight. Its vacancy rate is “expected to fall yet again this year, reaching another all-time low of 1.7 per cent, down from 2.3 per cent in Q4 2019,” according to the report.
The Metro region’s industrial vacancy rate is predicted to remain at 2.4 per cent this year, with both new supply and absorption set to increase. Net asking rents are expected to increase well above inflation, by about 4.6 per cent, said CBRE.
The report said, “Despite each of Vancouver’s office and industrial sectors ending 2019 with 5.5 million square feet of new construction underway, combined preleasing of 57 per cent means this near record-setting wave of development will not provide significant relief to the city’s historically low vacancy rates... It is expected that continued tightness should support rent growth in both sectors in 2020.”
These market conditions are luring institutional investors to increase their exposure to the Metro Vancouver commercial real estate market, according to CBRE.
The report authors wrote, “Strong fundamentals across asset classes are attracting significant capital to Vancouver. As liquidity mounts, it is expected that investors will become more creative in terms of built form and deal structure and that pricing will continue to climb in 2020. New entrants including Blackstone, Crestpoint and KingSett have shown increased conviction and have looked to partner with local firms to gain a foothold in the market.”
Jason Kiselbach, CBRE Vancouver’s managing director, confirmed this trend. “We’re seeing a growing number of institutional investors partnering with local owners in Vancouver,” he said. “They continue to be bullish, and we anticipate large purchases in 2020. They’re looking at our current low inventory fundamentals and potential rental rate growth as an opportunity, and we expect that they will continue to purchase industrial, office and multi-family assets, with the continued increase in rental rates and lack of supply driving further construction of new projects.”
CBRE's prediction's for the Metro Vancouver commercial market are listed in the table below, and you can download CBRE’s full national report from here.