As downtown Vancouver’s current cycle of new development winds down, the office market is gradually tightening and becoming more challenging for tenants. Buildings delivered during this cycle of development are approximately 94% leased, and overall vacancy rates in Vancouver’s downtown core are continuing to tighten. The vacancy rate for all office classes in downtown Vancouver was 7.5% at the end of 2016, down from 9.6% a year earlier, according to the most recent report by Newmark Knight Frank Devencore.
“The market is somewhat fragmented at the moment,” said Jon Bishop, executive vice president and managing principal of Newmark Knight Frank Devencore’s Vancouver office. “Much of the downtown office space with less dated, user-friendly improvements has been absorbed. Many of the remaining opportunities are built out with older improvements or are in shell condition that require more substantial tenant improvement projects and capital budgets. For tenants requiring over 25,000 square feet of contiguous space, The Exchange Building, which will come online later this year, may offer the best new-build alternative.”
The Newmark Knight Frank Devencore report also notes that strata office spaces are attracting heightened interest. At present, there are almost 1,100 commercial strata lots in downtown Vancouver and two strata office developments scheduled to be completed in the first half of 2019. Up to 45,000 square feet is currently being offered at 1575 West Georgia Street during its pre-sale stage and One Burrard Place recently sold out 60,000 square feet of office space in less than two months, indicating substantial interest in strata ownership from investors.
Newmark Knight Frank Devencore recently arranged a pre-sale of 45,000 square feet for a client; this is one of the largest office strata transactions in British Columbia.
“While supply and demand in the downtown Vancouver office market are in relative balance, tenants will likely find the office market more challenging in the quarters ahead as space is steadily absorbed,” Mr. Bishop said. “Opportunities still exist, but they are often building-specific. Some landlords, for example, are beginning to market their properties aggressively, while others are more willing and able to carry vacant space and wait until market conditions turn in their favour. With the next new development cycle likely some years away, space users may want to consider extending a term into the next building cycle underway in 2019/2020.”
