Office space market tight, expensive in downtown Vancouver

VANCOUVER – Downtown Vancouver’s office market is increasingly tight, with topdrawer offices now fetching top dollar, according to a market study released Monday.

With an overall vacancy rate of just 3.3 per cent for top-tier or Class A office buildings, the market is expected to remain expensive until more office towers are built over the next several years, said the study published by independent realestate services firm Newmark Knight Frank Devencore, based in New York.

“If you’re going to need 10,000 square feet, you’re going to be extremely limited in downtown,” Jon Bishop, vicepresident and general manager of Devencore Company Limited, Knight Frank’s Canadian partner, said in an interview in Vancouver.

“There hasn’t been a significant new tower in years, since the Bentall 5 building,” Bishop said. “It’s a supply-anddemand dynamic in downtown Vancouver.

“But we’re anticipating more office towers in downtown Vancouver in the next three to four years. And when you see new inventory, things will stabilize.”

Until then, he said, the Class A market will remain a landlord’s market, commanding top dollar.

Bishop said Class A offices are now getting $35 to $45 net per square foot, with a 20-per-cent premium for higher floors with North Shore views.

The estimated gross rates (including real-estate taxes, operating expenses and power) for Class A offices were $46.44 per square foot in the fourth quarter, compared to $53.58 in the fourth quarter of 2007, and Bishop estimates the rates will return to the $56-to-$58 range by the end of 2011.

“While the office real-estate market in Metro Vancouver experienced moderate turbulence during the economic meltdown of 2008-09, it was nevertheless one of the most stable markets in the country,” the report said.

At the peak of the recession in mid-2009, combined vacancy rates climbed to 5.9 per cent compared to a historic low of just 2.1 per cent for Class A and B space at the end of 2007.

Right now, in the Class A submarket, only 430,000 square feet of space -down from 550,000 square feet in mid-2010 -is available.

“Certainly the 2010 Olympic Games had a positive effect on the local economy, bringing some $600 million in investment to the city and environs, and Metro Vancouver’s business community has been generally upbeat, as evidenced by the growth that has taken place over the past 12 months, and the flight to quality that has characterized tenant movement through 2010 and into the current year,” the report said.

Downtown Vancouver has a total inventory of just over 20 million square feet, making it the fourth-largest market in the country, after Toronto, Montreal and Calgary.

Piranha Games president Russ Bullock has experienced the difficulty of finding office space, saying his company searched for half a year before finding a 13,000-square-foot office at the International Village Mall, 88 West Pender, earlier this year.

Piranha signed a 10-year lease for the office space.

“It was a fairly concerted effort for six months or so to find a spot that would work for us,” Bullock said in an interview. “The market tightened up.”

“It wasn’t a lot of fun,” he said of the office search. “But we’re really happy now.”

Projects scheduled for completion over the next several years that should ease the pressure on office space include Jameson House on West Hastings, which will include eight floors of office space; the Bentall 6 tower at 745 Thurlow, with 400,000 square feet of office space; Oxford Properties Group’s redevelopment of the University Club near the waterfront on West Hastings, with 260,000 square feet and Telus’s 500,000-square-foot, 22-storey tower at West Georgia and Seymour.

Other projects in the predevelopment stages include the 220,000-square-foot Rogers Arena Tower on Griffiths Way; Manulife’s 250,000-square-foot development at Howe and Nelson and the 900,000-squarefoot Broadway Tech Centre at 3030 East Broadway.

The report also said that with a tightening market, more tenants will consider locating in places such as Burnaby, Surrey and Richmond, where there is more space available at a lower cost.

Across the rest of the country, vacancy rates have continued to decline as the economy has strengthened. The overall vacancy rate in Class A and Class B buildings in Canada’s major cities fell from 7.1 per cent to 6.8 per cent over the last six months of 2010.

Source: The Vancouver Sun