Downtown remains tight as developers race to build next office tower
VANCOUVER, Jan. 26 /CNW/ - Building on the mostly positive indicators
witnessed at mid-year 2010, Metro Vancouver's office market continues
to demonstrate strength in the form of positive absorption and a
stabilizing vacancy rate, which bodes well for 2011.
These are some of the key trends noted in Avison Young's Year-End 2010 Metro Vancouver Office Market Report, released today. The semi-annual survey covers vacancy, absorption and
new construction trends in the Downtown, Yaletown, Broadway, Burnaby,
Richmond, Surrey, New Westminster and North Shore submarkets, which
total 46.2 million square feet (msf) in office space.
The region witnessed positive annual absorption in 2010. The net change
in occupied office space between January 1 and December 31, 2010 was
246,777 sf - a sharp contrast to the negative annual absorption of 1.03
msf in 2009. Five of the eight submarkets experienced positive annual
absorption in 2010, compared with seven submarkets posting negative
annual absorption in 2009. The Broadway submarket led the way in 2010
with 200,047 sf in positive absorption followed by Yaletown. Surrey,
Downtown Vancouver and New Westminster also enjoyed positive annual
absorption in 2010.
The overall Metro Vancouver vacancy rate held steady through 2010,
ending the year at 8.4% (relatively unchanged from 8.3% six months
earlier but up from 7.8% a year ago). Three submarkets (Surrey,
Yaletown and Broadway) saw their vacancy rates decline in the last half
According to Avison Young Downtown office leasing advisor Brian Pearson, demand for Downtown office premises was moderate in 2010 and largely
attributable to incremental expansions within the existing tenant base.
"Supply constraints likely stifled leasing activity and continue to
challenge Downtown landlords and tenants," he says. "Relatively low
vacancy of 5.2% and increasing net rental rates are heightening
expectations that one or more developers will break ground on Downtown
Vancouver's first new office tower since the completion of Bentall 5 (phase 2) in 2007."
The Downtown office market remains tight with only 5.2% vacant at
year-end 2010, down from 5.5% at year-end 2009. Class AAA and A
premises remain constricted with only 3.9% and 2.8% unoccupied,
respectively. If the space availability factor (SAF) is taken into
consideration, Downtown's effective availability rate is 7.1%, a
decrease from 7.8% at year-end 2009. (SAF refers to head lease or sublease space that is being marketed but is
not physically vacant, or new supply that is nearing completion and
available for lease.)
Burnaby and, to a greater extent, Richmond are still working through the
inventory that came online in recent times. Burnaby's office vacancy
rate held steady at 13.2% through 2010 but Richmond vacancy climbed to
24.6% - currently the highest vacancy rate in Metro Vancouver - from
20.2% at year-end 2009. The overall suburban vacancy rate is 11.2%.
"The suburbs should witness mostly positive indicators in 2011, although
Burnaby and Richmond will continue to deal with higher vacancies,"
comments Avison Young Principal Bill Elliott. "Demand is expected to increase during the next 12 to 18 months,
creating an environment where landlords will gradually gain more
leverage as the supply of quality inventory diminishes in markets with
Sublease vacancy continues to dry up throughout the region for the most
part. As of year-end 2010, 476,210 sf of vacant sublease space existed,
down from 709,870 at year-end 2009. Vacant sublease space now
represents only 12.4% of Metro Vancouver's total vacancy. Improved
confidence and heightened demand reduced sublease vacancies
significantly in 2010 as tenants occupied existing surplus space or
pulled listings in anticipation of future growth.
Developers added more than 500,000 sf of new inventory to the Metro
Vancouver office market in 2010, more than half of which was in
Burnaby. In 2011, developers are poised to deliver another 400,000 sf
in Metro Vancouver.
New Downtown office towers proposed
Positive Downtown annual absorption of 53,846 sf (albeit minimal) marks
a significant improvement over the negative annual absorption of
556,876 sf in 2009. Many tenants moved up market during the last 12
An additional 71,500 sf is coming on the market in the first quarter of
2011 with the finishing touches being applied at Delta Group's The Offices at Hotel Georgia development (669 Howe Street). Meanwhile, Jameson House (838 West Hastings Street), developed by Bosa Properties, will offer 60,000 sf of office space in the second quarter of 2011.
"Large blocks of available contiguous space greater than 25,000 sf are
virtually non-existent," notes Pearson. "Leasing activity exceeded
900,000 sf in the second half of 2010. However, 13 of the 16 notable
transactions we recorded were renewals, which likely reflects the
supply constraints prevailing in the Downtown office market. Looking
forward, current leasing momentum suggests the market will tighten even
further in 2011."
With just 131,500 sf planned to come on stream Downtown in 2011 and no
new office tower expected to complete construction until the end of
2014 at the earliest, the competition to build Downtown Vancouver's
next office tower is gathering steam.
Bentall Kennedy is proposing 365,000 sf of office space coupled with a 33,000 sf retail
component for its 23-storey development at 745 Thurlow Street. With its
rezoning complete and development permit in hand, Bentall Kennedy
expects crane-swinging to start in early 2012 for completion in late
2014 or early 2015. Oxford Properties continues working with the city on the design of its proposed office
tower in the 1000-block of West Hastings Street, which could offer an
estimated 260,000 sf of office space over 36 storeys. Oxford's second
potential Downtown project is the redevelopment of the office/parkade
complex at 1133 Melville. The company acquired the property in summer
2010 as a long-term development site.
Aquilini Development and Construction is in the final stages of approval for its development permit that
would bring to market a 22-storey, mixed-use building at 800 Griffiths
Way, adjacent to Rogers Arena. Development plans call for 223,000 sf of office premises along with
63,000 sf of retail space. Announced this past fall by Jim Pattison Developments/Reliance Properties, the Burrard Gateway project in the 1200-block of Burrard Street would offer 205,000 sf of
office space in a range of configurations, including a 13-storey,
100,000-sf boutique office building fronting on Burrard Street. A
seven-storey residential and commercial podium fronting Hornby Street
would also include up to 100,000 sf of large-floorplate office space.
Several other developers are also positioning themselves to obtain
approvals from the city to construct additional office towers.
"With modest upward pressure on net rental rates in the last half of
2010, the Downtown market is expected to continue experiencing rental
rate increases in 2011 as vacancy rates decline," says Pearson.
"We expect the Downtown vacancy rate to drop below 5% in the next 12
months and preleasing activity to intensify as developers compete to
initiate one or more new office developments," says Elliott. While a
Downtown vacancy rate of 8% to 10% is considered balanced, which allows
landlords to maintain rental rates and provides sufficient alternatives
for tenants, the current imbalanced market creates challenges for both.
Elliott continues: "While limited alternatives for tenants may allow
landlords to push harder on lease rates, it also creates problems for
landlords who are unable to accommodate expanding tenants or new
entrants to the market. For tenants, rising Downtown lease rates and an
inability to expand could see suburban options receive greater
Overall, demand for Metro Vancouver office space is expected to increase
in the core in 2011 while some suburban markets continue to deal with
higher vacancy rates, he says.
Founded in 1978, Avison Young is Canada's largest independently-owned commercial real estate services
company and the only national, Canadian-owned, principal-managed real
estate brokerage firm in the country. Headquartered in Toronto, Ontario
and ranked among Canada's leading national commercial real estate
organizations, Avison Young is a full-service commercial real estate
company comprising more than 700 real estate professionals in 23
offices across Canada and in the U.S. The company provides value-added,
client-centric investment sales, leasing, advisory, management,
financing and mortgage placement services to owners and occupiers of
office, retail, industrial and multi-residential properties.
For further info/comment/photos:
• Sherry Quan, National Director of Communications & Media Relations:
(604) 647-5098; cell: (604) 726-0959
• Brian Pearson, Advisor, Avison Young: (604) 647-5078
• Bill Elliott, Principal, Avison Young: (604) 647-5062
• Andrew Petrozzi, Research Manager, Metro Vancouver, Avison Young: (604) 646-8392
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SOURCE Avison Young (Canada) Inc.
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