Office Vacancy Rates are Declining in Vancouver. Here’s Why
February 16, 2022 4 Minute Read
Prior to the pandemic, overall office vacancy rates in Vancouver were at record lows. As the global pandemic started, these rates soared to the highest seen in the last five years. Suddenly, offices closed, with the uncertainty of when they’d return to operating at full capacity. As months passed, companies had to evolve and adapt to create flexible hybrid environments. As vaccination rates ramped up, the death of the office proved to be a misconception.
For the first time during the COVID-19 pandemic, we are seeing a decline in vacancy rates for all classes of office product in Metro Vancouver - a 40 basis point decline to 7.2% in the fourth quarter of 2021 to be exact.
As the economy continues to recover from the pandemic, we are anticipating significant growth in office-occupying employment sectors, confirmed by Metro Vancouver’s office vacancy rates experiencing their first decline since 2019.
Prior to the pandemic, office product in Vancouver was extremely sought after. Competition was high— especially in the downtown core, where blocks of space over 20,000 sq. ft. were non-existent.
“Large US tech giants, like Microsoft, Apple, and Amazon, dominated interest at the end of 2019, and were absorbing much of the new construction on offer - the city was at its lowest vacancy in history”, says Kevin Nelson, Executive Vice President of CBRE Vancouver’s High Technology Facilities Group.
“This paused through 2020, causing vacancy to stack up and new construction projects faced the prospect of delivering into a market with muted demand.”
Pre-pandemic, Vancouver was known for having the lowest vacancy rate in North America for major markets (those with over 15 million square feet of total space). Downtown, vacancy rates fell as low as 2.2% in the last quarter of 2019, liming options for any new tenants looking to occupy space.
Fast forward to present time, and while Omicron has caused another disruption in Vancouver’s commercial office market, our market intelligence confirms that new leasing activity will gain momentum through 2022.
“A commonality we’ve heard amongst many current and potential customers is that they have been steadily hiring employees for nearly two years,” says Ted Mildon, Director of Office leasing at Oxford Properties Group. “Their future workplace strategies have to contemplate not only those increased head counts, but also enhanced plans for collaborative spaces, which has led to increased demand for premium office space, especially in the last two to three quarters.”
Akin to what we saw in the years leading up to the pandemic, Vancouver is now witnessing a downward trend in vacancy rates coupled with escalating lease rates in office buildings. Average asking lease rates for office buildings in Downtown Vancouver have reached $39.83 per sq. ft overall in Q4 2021, with future increases expected in the coming quarters. This can be attributed to the steady demand for office product.
“By the first half of 2021, activity and deal velocity rose to near late 2019 pace, driven by a rise in confidence for local companies and an abundance of financings,” notes Kevin Nelson. “This caused an immediate reduction in quality sublets as primary interest targeted quality spaces at value pricing.
By the second half of 2021, sublets were being taken back off the market, while U.S. tech firms began to return, joining the local demand. This combined activity rapidly depleted the supply of larger existing spaces, forcing companies planning for their post pandemic operations to look in earnest at shell spaces in new developments.
Optimism for the Future
As a result of these trends, we are witnessing an uptick in market optimism.
Commercial real estate in Vancouver continues to outperform other industries, bringing in billions in transaction volume and contributing to the larger economy.
“The last six months have witnessed the announcement of several shell deals and nearly 150,000 sq. ft. in commitments, driving a second wave of noticeable demand to begin the new year, and an anticipation of continued vacancy decreases to follow this year”, notes Nelson.
With office leasing rates continually on the rise, organizations are quickly becoming keen to kick off negotiations with landlords to secure their spot in the already constrained office sector.
At a time of concern over the future of office and downtown cores, Joey Restaurant Group, one of North America’s top restaurant chains, is demonstrating its firm belief in Toronto.
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