Metro Vancouver’s already scorching-hot office market is likely to see even further tightening of vacancy rates to new record lows over the next year, according to a February 11 report by Avison Young.
Downtown office vacancy was historically low in 2019, falling to 2.6 per cent at year-end 2019 from 2.9 per cent a year earlier, reported the commercial real estate brokerage. This is likely to fall even further in 2020 to a new record low, according to the report, which will result in “upward pressure” on already high office rents.
Across the Metro Vancouver region, which has a total of 51.8 million square feet of office space, the overall vacancy rate at year-end 2019 fell to 4.4 per cent from 5.1 per cent a year earlier and 8 per cent two years previously. In mid-year 2019, it reached a record low of 4.3 per cent, but Avison Young predicted the rate would “drop significantly lower in 2020.”
Excluding Vancouver proper, suburban office vacancy slipped to 6.2 per cent at year-end 2019 (from 7.3 per cent a year earlier), which Avison Young described as the tightest suburban vacancy on record since the company started tracking it in 1997.
Avison Young said in the report, “Metro Vancouver’s office market reached a critical juncture in 2019 as demand from global technology firms took root and reshaped not only the scale and design of the next wave of downtown office towers, but also highlighted the range of economic, social and political impediments contributing to a region that increasingly appears to be becoming a victim of its own success.”
Downtown Vancouver is expecting more than five million square feet of new office space to be built by 2024, which is either under construction or in the development permit process – the largest office construction cycle in the city’s history. However, approximately 61 per cent of the downtown space that is currently under construction (3.74 million square feet) and expected to be completed by mid-2023 had already been preleased at year-end 2019.
Glenn Gardner, Avison Young principal, said, “[Office] tenants will need to be proactive when addressing their lease expiry in order to ensure they can continue to meet their space requirements. There will be relief coming to the market in both existing buildings and new developments; however, this relief will not arrive until 2021 at the earliest.”
Avison Young added, “The next two years will prove to be crucial to Metro Vancouver’s transformation into a truly world-class office market as severe supply constraints across the region temporarily limit deal velocity, hamper absorption and potentially impact expansion/relocation plans of both existing businesses and those considering establishing a presence in the market. These conditions also triggered the emergence of not one but two development cycles in the downtown core – a first for the city – in order to meet anticipated demand.”
To read the full report, including breakdowns and market forecasts in different neighbourhoods and suburban areas, click here.