Photo: Brian Holsclaw/Flickr
As downtown Vancouver’s current cycle of new developments begins to taper off, tenants are facing the challenge of finding suitable office space to run their businesses from.
At the end of 2016’s fourth quarter, the vacancy rate for all classes of office space in downtown Vancouver declined to 7.5 per cent compared to 9.6 per cent a year earlier, according to a new report from Newmark Knight Frank Devencore, a Canadian real estate advisor and broker.
Meantime, buildings delivered during this cycle are almost fully leased, at about 95 per cent, and vacancy rates are continuing to climb in the city’s downtown core.
With less space available for tenants to lease, average gross rents have been on the rise. They reached $41.17 per square foot at the end of 2016’s fourth quarter, up from $40.27 per square foot in 2015’s fourth quarter.
In Metro Vancouver’s suburban markets, vacant office space varies. But overall in 2016 most areas experienced a positive rate of absorption by tenants.
Tenants currently seeking leasable office space may have to search around. Many of the downtown office lots that are in good condition have been leased. Most of the current spaces available are in need of renovations.
In 2017, three new commercial developments are being delivered, one of which should help tenants whose lease is soon expiring or are looking for larger blocks of adjoining space.
The Exchange, a 31-storey, 369,000-square-foot building may offer tenants the best option for a new-build development and it is expected to be on the market later this year.
Finding office space in the downtown core may be an ongoing battle, as commercial real estate activity is booming in the province, suggests the British Columbia Real Estate Association (BCREA) in a separate report.
“The strength of the underlying BC economy, particularly relative to the rest of Canada, makes BC a very attractive destination for commercial investment,” says Brendon Ogmundson, an economist at BCREA, in a statement.
BCREA’s Commercial Leading Indicator (CLI) forecasts broad commercial real estate movement in the province based on economic, employment and financial factors.
For a fourth straight quarter, the CLI has increased. It grew 1.5 index points in the fourth quarter and now sits at 123.9 per cent, a 5-per-cent increase from a year ago.
The CLI trend continues to rise, suggesting further growth in commercial real estate activity over the next two to four quarters.
Strata offices are subdivided ownership units (rather than leasable ones) in a development, and are gaining more attention as an alternative space for commercial tenants as borrowing costs remain low and leasing rates continue to grow.
Currently, there are nearly 1,100 commercial strata lots in downtown Vancouver, and by 2019 two more strata office developments are expected to be completed.
These available strata offices range in size from 250 square feet and up and cost $600 to $1,200 per square foot.
Newmark Knight Frank Devencore predicts office space will be harder to come by in the quarters ahead.
Tenants might want to consider extending a lease into the 2019-2020 building cycle because it could take a few years for the next new development cycle to bring product to market, the national real estate company suggests.