Office construction in downtown Vancouver gives companies greater space flexibility
The office construction boom in Vancouver is fueling commercial real estate competition.
Office vacancies increase as square footage is added to the market. The increased supply is rebalancing the Vancouver office market after years of tight conditions characterized by record vacancy rates.
The office vacancy rate in downtown Vancouver rose to 10.8 percent in April, the first time the rate has exceeded 10 percent since 2004, according to Avison Young.
Before the pandemic, the level of office vacancy in Vancouver was the lowest in North America at 2.2% in the fourth quarter of 2019, according to CBRE.
“I think it’s one of the biggest increases in supply that we’ve seen in recent years, [more] that Vancouver has experienced in the past, which is one of the main reasons for the increase in vacancies,” said Byron Chard, Chairman and CEO of Chard Development Ltd.
“This is a great example of supply and demand and how more supply can emerge and make the market a more competitive place. Which also means that landlords need to offer more amenities to attract tenant interest: better mechanical systems and better offers to attract tenants to the building.”
Office completions in the last quarter of 2022 and the first quarter of 2023 added a significant amount of square footage to downtown Vancouver. The Stack, Bosa Development Vancouver Center II’s 320 Granville building added a combined 1,075,000 square feet to the market, according to Avison Young.
In addition, the south tower of Quadreal Property Group’s The Post development added 517,375 square feet, according to Colliers, and Deloitte’s new Summit office building added 355,000 square feet.
Overall, a combined 1.4 million square feet of new space will be added in 2022.
“It was a perfect storm of new buildings being delivered and then really a specific sector backed off in the amount of space that they were going to occupy or try to sublet,” said Glenn Gardner, principal and deputy principal. office division president at Avison Young.
Technology companies are reducing their demands for office space as a result of a slowdown in the sector. The change is driven by a desire to save costs by having employees work from home, Gardner said.
All three elements combined mean that tech companies are furthest away from downtown Vancouver, he said.
The tech sector occupies about 80 percent of all subleases downtown, according to Tim Holloway, Avison Young’s director of innovation and insights.
Inside AAA-class buildings, vacancy increases are being seen on the middle and lower floors as businesses compete for views of the areas surrounding downtown Vancouver.
“No matter which recession we refer to, high-rises have always had the lowest vacancy of all building classes, traditionally. At the end of the day, people love to see the oceans and the mountains and I can appreciate why,” Gardner said.
Nearly all Class AAA openings, 82 percent, are in the middle and lower tiers, according to Avison Young.
In contrast, Class A, B, and C buildings have a more distributed vacancy level. Within the Class B and C options, specifically, the lower levels offer discounted space. These tend to see a lower vacancy rate compared to the more expensive upper floors.
Within Class A buildings, the upper and middle levels are more prone to subletting activity.
The mid and upper tiers of Class A sublease space account for 42% and 40% of vacancies, respectively. At the lower levels, sublet space accounts for 17 percent, according to Avison-Young.
Overall, sublet space accounts for about a third of all vacant offices in downtown Vancouver as of April, according to Holloway.
To attract employees back to the office, companies want a clean, safe, new space for workers to return to, Chard said.
“You as an employer are doing more to get your employee back to work, and as we found, the landlord needs to partner with their tenants to help and be part of the solution to encourage employees to come back to the office.” . he said.
“We’re even seeing some really creative companies partnering with local breweries, businesses or donut shops to have that integration, which is helping the community and those small businesses as well.”
Before the pandemic, when the office vacancy rate in downtown Vancouver was 2.2%, companies had to renovate and work with their existing space if changes were necessary.
“Having new supplies on the market means older buildings need to upgrade as well and remain competitive. So, the new offer that enters the market is good, healthy and allows competition, which means innovation”, says Chard.
“[It] it will be better for the final consumer”.
