Vancouver has been declared the joint-hottest office market in North America, along with Toronto, with downtown office vacancy rates plummeting, according to a July 9 report.
CBRE’s Canada Q2 Quarterly Statistics Report said that downtown Vancouver’s office vacancy rate was 2.6 per cent in 2019’s second quarter, down from 4.7 per cent one year previously and now equal to Toronto. The third most-sought-after office space in North America is in San Francisco, where the vacancy rate is 3.6 per cent.
The average vacancy rate for downtown office space across Canada in Q2 was 10.1 per cent, according to CBRE.
In terms of new office developments downtown, 46 per cent of the 3.9 million square feet of office space scheduled for completion by 2023 has already either been leased or is under contract.
The report said that the record demand is resulting record-high rental rates. Vancouver’s average Class-A downtown office rents increased to a record $44.00 per square foot (psf) in Q2, up from $42.02 psf the previous quarter.
Paul Morassutti, CBRE Canada vice-chairman, said, “Two years ago, it would have been unprecedented to have a Canadian city top the North American office rankings. We now have two Canadian cities setting the pace, which is truly remarkable. Something special is happening in this country and the investments being made by businesses and developers suggest that our office and industrial markets are well-positioned for the digital economy.”
Jason Kiselbach, vice-president with CBRE Vancouver, said of the Metro Vancouver office market, “It will be difficult to find locations for businesses that need to expand and for new entrants to the market. Never before has the option to renew clause within a lease been so valuable, and if businesses don’t have that option in their lease, it is critical that they start negotiating extensions and consider relocation alternatives well ahead of their current expiry.”
Across all of Metro Vancouver, office vacancies were low in Q2 at 4.3 per cent, or 6.1 per cent if excluding Vancouver proper. The report added, “Transit-oriented developments across the region are expected to provide more options in the next few years. Of the 5.1 million square feet of [Metro Vancouver office] space currently under construction, 31.5 per cent has been pre-leased.”
Industrial market still tight
In the industrial market, it’s a similar story, with both Metro Vancouver and Greater Toronto having “among the lowest availability rates in North America,” said the report.
It said, “[Metro] Vancouver’s industrial vacancy rate was 2.1 per cent in Q2 2019, despite that market having had the largest amount of new supply delivered in a single quarter in over 10 years in Q2: 1.5 million square feet. This shows just how insatiable demand is for industrial space in that market.” However, that vacancy rate is slightly higher than Q1’s 1.9 per cent. Greater Toronto’s industrial market is even tighter than Vancouver’s, having been at a record-low 1.5 per cent vacancy rate for the past two quarters.
Kiselbach said of Metro Vancouver’s industrial market, “There will be a limited impact on the availability of industrial space despite this new construction boom. So we anticipate record low vacancy and increasing lease rates to remain.”
The report added, “Strong demand and low availability pushed average net rents for [Metro] Vancouver industrial space to $12.62 psf in Q2, a 1.3 per cent quarter-over-quarter increase.” That price is 50 per cent higher than Greater Toronto’s average industrial rents of $8.18 psf, despite the GTA’s tighter vacancy rates.
CBRE’s report said that Metro Vancouver’s GDP is expected to lead the country over the next two years, with the highest growth for the office market lying in professional services and technology businesses, and for industrial, in the transportation, warehousing and manufacturing sectors. “This forecasted growth coupled with record low supply is why Metro Vancouver is one of the hottest commercial real estate markets in North America,” added Kiselbach.
CBRE's quarterly market update comes just one day after it announced that the company had been awarded a massive $190-million-a-year contract to maintain and manage the B.C. government's property portfolio.