Vancouver Commercial Real Estate is Punching Above its Weight

Market exceeded expectations this year, and CBRE forecasts record-low vacancies and surging rents will continue to define the city’s success in 2020

Despite global instability, the Vancouver commercial real estate market has been punching above its weight. Record-low office and industrial vacancy has led to steadily rising rents, and domestic and global capital is descending on the West Coast in pursuit of long-term growth opportunities. “Safe to say that the Vancouver market has exceeded expectations in 2019,” Jason Kiselbach, Senior Vice President and Managing Director for CBRE in British Columbia, said at today’s Market Outlook Breakfast, kicking off the Vancouver Real Estate Strategy & Leasing Conference.

There are many reasons for optimism heading into 2020. Vancouver’s downtown office vacancy rate is the second-lowest in North America, dropping to 2.4% in the third quarter, and the amount of available industrial space across Metro Vancouver is at a near-record low of 2.5%. New supply in both markets is being snapped up quickly and declining vacancy is causing rental rates to rise steadily. “Rising rents might not be great news for tenants, but it makes new construction more viable in the face of rising costs. New supply is the key to alleviating space constraints and rising costs,” said Kiselbach.

On the investment front, Vancouver commercial real estate returns rival those of other global cities. Investor hunger for Vancouver properties stems from robust population growth, a thriving tech sector and rapid expansion in logistics and distribution due to the continued rise of e-commerce. “One factor in Vancouver’s favour that might come as a surprise is that we are actually cost competitive,” Kiselbach said. “Even with office rental rate increases, Vancouver is still cheap relative to other gateway marketlike Seattle and the Bay Area, where rents and wages combined are 71% and 101% higher respectively.”

What lies ahead for Vancouver commercial real estate? Kiselbach pointed to several trends to watch for in 2020 and beyond:

• No relief in vacancy or rents: Vancouver has experienced record-low office vacancy and industrial availability, leading to rising rents. And CBRE is not forecasting vacancies to rise in either segment in 2020, based on the pre-leasing deals that have been done with tenants that are new to the market or expanding.
• Local operators hit hardest: That lack of available space and rising rents will impact local and regional operators the most, particularly those looking to grow. “Larger multinational tenants who require prime locations and access to talent will be able to afford the rising cost of entry into the Vancouver market and continue to drive demand for space,” Kiselbach said.
• Multi-storey warehouses: CBRE expects to see new forms of development start to re-shape the market in the coming years, including the first multi-storey logistics fulfillment centre in Canada.
• Capital attraction: For real estate owners, rising rents will increase deal sizes and attract capital. “Most institutions are under-allocated on Vancouver,” said Kiselbach. “We expect them to be more creative in terms of build-form and deal structure in order to get a piece of this market.”