Vancouver office market stable despite AAA vacancies and hybrid work
Despite the rise of remote and hybrid work models, the office space market in Metro Vancouver is holding up, according to a new report from Avison Young, a global commercial real estate services firm.
“While the full impact of hybrid office space has yet to be realized, there are positive signs of recovery and a shift in demand from inner city business occupants is expected,” the company says.
The report – with a scope of the first half of this year – found that the overall office space vacancy rate in Metro Vancouver remained stable, falling from 8.0% at the end of 2021 to 7.8% to June 31. In terms of absorption – the amount of space currently taken up – Avison Young also found that there were positive signs across most of the region.
The Downtown Vancouver Office Space Market
Downtown Vancouver remains Metro Vancouver’s area with the largest supply of office space, with approximately 23,810,879 square feet of inventory, representing over 40% of the 55,406,693 square foot total. Metro Vancouver office space. As a result, downtown Vancouver had the most square feet of vacant space, but had an 8% vacancy rate, which was the highest for the first half of 2022.
From mid-2021 to mid-2022, Class AAA office space had the highest vacancy rate in downtown Vancouver, which Avison Young attributes to “significant amounts of new class AAA delivered”. According to their numbers, a total of 568,278 square feet of new AAA space supply has been added by the end of 2021, and that absorption is just starting to catch up. In this regard, the vacancy rate of AAA-class spaces decreased in the first half of this year, from 9.5% in December 2021 to 8.4% at the end of June.
A big source of this vacancy can actually be attributed to just three buildings: the Deloitte Summit at 410 W Georgia, the 25-story building at 601 W Hastings, and the Bentall Four at 1055 Dunsmuir. The first two completed construction in late 2021, and the last continues to have vacancies, according to a recent CBRE list. During the second half of this year, the two The battery on 1133 Melville and Vancouver Center II at 733 Seymour Street are also expected to complete construction, which will further add to the Class AAA vacancy.
In terms of leases, the largest lease contract signed in the first half of 2022 belonged to Microsoft, which will occupy 405,000 square feet of Bentall Six on 1090 W Pender, which is expected to be completed in 2023. The other two largest leases were both from Vancouver-based athletics giant Lululemon, which is not only set to take over a building at 1380 Burrard, but also recently began occupying the Burrard Place office building.
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Metro Vancouver office space market
In the rest of Metro Vancouver, Burnaby had the second largest office space, with 9,441,637 square feet, and Vancouver-Broadway was third, with 8,331,969 square feet.
At Burnaby, no new supply was added during the first half of the year, so all absorption was from existing inventory. Burnaby’s inventory consists of approximately 70% Class A space, 22% Class B space, and 8% Class C space. And with an overall vacancy rate of 6.9%, Burnaby had the fourth-lowest rate in all of Greater Vancouver, but has significantly more inventory than the three regions with the lowest rate – Surrey (5.7%), New Westminster (4.9%) and the Coast- North (4.3%) — together.
For the Vancouver-Broadway area, the overall vacancy rate fell from 12.4% in mid-2021 to 8.5% in mid-2022. Avison Young again attributes this decline to occupancy activity in a few large tenants, primarily Fortinet, which will fill a big void when it moves into the 175,546 square feet it has leased to Class A Broadway Technical Center.
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Looking ahead, Avison Young sees an opportunity in Richmond, where rental rates increased in the first half of 2022 and are expected to increase further in the second half as Class A options are absorbed. The report also notes that the proposed Canada Line expansion — the addition of Capstan station between existing Bridgeport and Aberdeen stations – will likely further increase rental rates while facilitating transportation. “Richmond remains a strong suburban option for less capitalized groups, as the average rental rate of $18.90 per square foot is the lowest of any secondary market in Metro Vancouver,” says Avison Young.
Elsewhere in Surrey vacancy is expected to remain tight in the second half of the year, New West “offers limited opportunities for tenants” and the North Shore is expected to have “continued and sustained rental activity”.
Howard is an editor at STOREYS. He is based in Vancouver, BC and has also written on media for One Zero and international politics for WhoWhatWhy. Prior to STOREYS, he was also associate editor of 604 Now.
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