Locating top-tier office space in downtown Vancouver is becoming a significant challenge for tenants, according to a real estate market research study by Devencore. Vacancy rates for all office classes have plummeted to 5.0 per cent, down from 7.1 per cent a year ago. Class A office vacancy rates are even lower, at 4.0 per cent. At the same time, average gross rents are climbing steadily.
“The next development cycle is underway, but there won’t be any major new office buildings delivered to the market until 2021,” said Jon Bishop, executive vice-president and managing principal of Devencore’s Vancouver office. “As a result, it’s going to be increasingly challenging for tenants to locate Class A space in downtown Vancouver over the next three years. Securing leases on larger contiguous blocks of space will be especially difficult.”
As a result of demand outpacing supply for quality space in downtown Vancouver, competition for the space that is available is heating up.
“As vacancy rates continue to fall, it’s not unusual to see multiple offers on top-tier spaces,” said Bishop. “There is some sublease space available at the moment, but this likely won’t remain on the market for very long.”
The interest in strata space isn’t showing any signs of easing, despite selling prices that have gone as high as $2000/sf. A number of new developments are under construction, and they are rapidly being bought up. Some real estate analysts have begun to question whether the market can realistically support the stratospheric prices.
The space shortage is even encouraging some tenants to renew their leases up to two years before they expire. Bishop advises a better range of leasing opportunities exist in the submarkets outside downtown Vancouver for tenants willing to locate to the suburbs.
“Tenants have to understand that it will be a few years before any new space comes to the market, and by the time this new space is delivered it may not be sufficient to meet the pent-up demand,” he said.