Tenants in high tech, finance, professional services and hospitality are driving recent leasing activity in the downtown Vancouver market, sharply reducing space availability and sparking developer interest in bringing new office buildings to the area, according to new market research from Newmark Knight Frank Devencore.
Two large transactions defined the past two quarters. They include WeWork’s commitment to almost 80,000 square feet in Bentall Three at 595 Burrard Street and the conditional deal with The Executive Group to convert close to 110,000 square feet to hotel use in The Exchange building at 475 Howe Street.
“The conversion of a large part of The Exchange building to hotel use has the most far-reaching ramifications, as this was the only new property being delivered to the market in 2017 with substantial availability,” said Jon Bishop, executive vice-president and managing principal of Newmark Knight Frank Devencore’s Vancouver office. “The tightening of the downtown Vancouver market may lead some developers to accelerate the projects they already have in the planning and permitting stages. There are at least a dozen such projects in the pipeline, most of which are slated for 2021.”
Falling vacancy rates for all office classes in downtown Vancouver reflect the growing demand. In the current quarter, the overall vacancy rate stands at 7.1 per cent, down from 8.7 per cent a year earlier. The decline in supply has put pressure on average gross rents as well, which currently stand at $41.76 per square foot, compared to $40.73 per square foot a year ago.
“Newer downtown office space is almost fully occupied, and larger blocks of contiguous space can be a challenge to find,” Bishop said. “There are limited opportunities for tenants seeking smaller spaces, but most of these opportunities will be found in older buildings that may require improvements. Furthermore, many of the best leasing options that currently exist are landlord or building specific, so tenants and their advisors need to be prepared to negotiate innovative ways to finance the necessary improvement projects.”
