Vancouver Commercial Real Estate Outlook 2023
February 9, 2023 4 Minute Read
Vancouver's downtown office vacancy rate rose to 9.8% at the end of 2022, but still remains North America’s lowest.
Meanwhile, the Metro Vancouver industrial market finally saw a slight increase in the availability of space, but remains one of Canada’s tightest industrial markets.
Retail space in the region has been in short supply as consumers have returned to in-person shopping and not a lot of new product has been constructed.
What’s in store for Vancouver commercial real estate in 2023? B.C. Managing Director Jason Kiselbach tells us what he’ll be watching for.
The uptick in downtown office vacancy is being driven by the fact we’re at the tail end of the largest supply cycle we’ve ever had in Vancouver. All that supply was predicated on the fact that we were at sub 3% vacancy until Q2 2020, and that was driving demand and interest in new construction. Some of those new projects are now being completed with vacancies, which has led to an increased vacancy rate..
Our view is that the office market will stabilize at or near where it is now. The majority of the new development pipeline has delivered with a significant portion preleased and decent leasing activity on the currently available space and the next new supply cycle is years away. There’s still the flight to quality narrative, so the Class A buildings are going to continue to perform well and rates will hold firm for quality space.
As far as the older and less amenitized buildings go, many landlords are looking at putting capital into them to make them more competitive and attractive, especially with the return to work trend continuing to gain momentum.
The suburban office vacancy in Metro Vancouver has remained lower than downtown since 2021, a trend that we were not expecting. This is largely attributed to the popularity of the Mt. Pleasant and Broadway neighborhoods particularly for tech and life sciences companies with employees enjoying the live / work / play offering of the neighborhood. Outside of those two submarkets there has not been much development of new suburban office space keeping supply finite.
I thought that as the economic fundamentals changed and talk of recession became more prevalent, it would have more impact on industrial demand. But we’ve been surprised in a good way in the continuation of demand for industrial product, in particular the large-format space for goods distribution and third party logistics.
We’re still reporting significant activity as tenants look for that kind of space in the midst of a critical shortage of product. So we expect the continuation of these trends in 2023: record-low industrial vacancy, increasing rental rates and a shortage of space.
We’re also seeing the trend where the economics now make sense to purchase functionally obsolete product in core markets like Richmond and Burnaby, tear it down and put up new best in class buildings.
Retail has exceeded expectations in recent years. It went through a big disruption and now things are more stable. We’re seeing good demand on the retail leasing side and there hasn’t been a lot of new product built, particularly in the core markets.
It has been primarily mixed use projects being built for retail, and some of those have been put on hold because the residential market has not been as strong.
Stores themselves have become busier as supply chain disruptions have forced people to find the items they want. People are saying I’d rather go to the store and buy the item there; plus people crave human interaction.
So overall retail has been performing well; it’s under-supplied and there have been some new store openings in the core, like at The Hub, and strong demand for suburban shopping centres, such as Guildford Village in Surrey and the Amazing Brentwood in Burnaby.
Looking ahead we’ve got retail deliveries coming at The Post downtown and the expansion of Willowbrook Mall. It all bodes well for another strong year for retail in 2023.
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