Despite burgeoning remote and hybrid work models, the office space market in Metro Vancouver is holding steady, according to a new report by Avison Young, a global commercial real estate services firm.
"While the full impact of the hybrid office space is yet to be realized, there are positive signs of recovery, and altered demands from downtown business occupants are expected", the firm says.
The report -- with a scope of the first half of this year -- found that the overall office space vacancy rate in Metro Vancouver has held steady, moving from 8.0% at the end of 2021 to 7.8% as of June 31st. In terms of Absorption -- the amount of space that's currently occupied -- Avison Young also found that there were positive signs across most of the region.
The Downtown Vancouver Office Space Market
Downtown Vancouver remains the area of Metro Vancouver with the largest supply of office space, with an inventory of about 23,810,879 sq. ft, accounting for over 40% of Metro Vancouver's total 55,406,693 sq. ft of office space. Accordingly, downtown Vancouver had the most square-feet of space that was vacant, but had a vacancy rate of 8% that was on the higher end for the first-half of 2022.
From mid-2021 to mid-2022, Class AAA office space has had the highest vacancy in downtown Vancouver, something that Avison Young attributes to "significant amounts of new supply of class AAA space being delivered." According to their numbers, a total of 568,278 sq. ft of new supply of AAA space was added by the end of 2021, and that absorption is just starting to catch up. To that tune, class AAA space's vacancy rate decreased in the first half of this year, from 9.5% in December 2021 to 8.4% by the end of June.
Photo: Westbank Corp.
A big source of that vacancy can actually be attributed to just three buildings: the Deloitte Summit on 410 W Georgia, the 25-storey building on 601 W Hastings, and Bentall Four on 1055 Dunsmuir. The first two completed construction in late 2021, and last one continues to have vacancies, according to a recent CBRE listing. Within the second half of this year, both The Stack on 1133 Melville and Vancouver Centre II on 733 Seymour Street are also expected to complete construction, which will further add to the class AAA vacancy.
In terms of leasing, the biggest lease deal signed in the first half of 2022 belonged to Microsoft, who will occupy 405,000 sq. ft of Bentall Six on 1090 W Pender, which is expected to complete construction in 2023. The next two largest leasing deals both belonged to Vancouver-based athleisure giant Lululemon, who is not only set to take over a building on 1380 Burrard, but also recently began their occupancy of the Burrard Place office building.
Metro Vancouver Office Space Market
Across the rest of Metro Vancouver, Burnaby had the second-most office space, at 9,441,637 sq. ft, and Vancouver-Broadway was third, at 8,331,969 sq. ft.
In Burnaby, no new supply was added during the first half of the year, so all absorption came from existing inventory. Burnaby's inventory comprises 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 Metro Vancouver, but has significantly more inventory than the three regions with the lowest rate -- Surrey (5.7%), New Westminster (4.9%), and the North Shore (4.3%) -- combined.
For the Vancouver-Broadway area, the overall vacancy rate decreased from 12.4% in mid-2021 to 8.5% in mid-2022. Avison Young attributes that decrease again to occupancy activity by a few large tenants, primarily Fortinet, which will fill a big vacancy when it moves into the 175,546 sq. ft it has leased at the class A Broadway Tech Centre.
Going forward, Avison Young sees opportunity in Richmond, where rental rates increased in the first half of 2022 and is expected to increase further in the second half, as class A options are absorbed. The report also notes that the Canada Line expansion project -- the addition of Capstan Station between the existing Bridgeport and Aberdeen Stations -- will likely increase rental rates further along with increased ease of transportation. "Richmond remains a strong suburban option for less capitalized groups as the average rental rate of $18.90 psf is the lowest of all secondary markets in Metro Vancouver", Avison Young says.
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 forecasted to have "continued strong leasing activity."