Demand for office space in Metro Vancouver continues to rise while availability of units heads in the opposite direction.
The market is now facing a leasing crunch as the vacancy rate approaches a record low; at the end of 2018 it was down to just 5.1% (51.4 million square feet) from 8% a year earlier.
Meanwhile, the absorption rate was near a record high at 1.8 million square feet, the most since 2005.
Avison Young’s Year-End 2018 Metro Vancouver Office Market Report covers vacancy, absorption and new construction trends in the Downtown, Yaletown, Vancouver-Broadway, Burnaby, Richmond, Surrey, New Westminster and North Shore markets.
2019 will bring more tightening
AY principal Robin Buntain, who specializes in Downtown office leasing, is not expecting things to improve any time soon.
“Deal velocity remained strong in 2018 thanks to a combination of both prelease commitments in new inventory and extensions in existing buildings as intensifying supply constraints and new developments stoked leasing activity,” he said. “As a result, tenants are demonstrating a willingness to address space needs well in advance of lease expiries with developers competing for prelease commitments.”
He added that the delta between net effective rates for new construction and existing, higher-calibre buildings in the near term, will narrow amid supply constraints and escalating leasehold improvement construction costs.
Suburban markets tightest since 2008
It’s not just the Downtown office market that is tightening. The report shows that suburban markets’ vacancy rate slipped to 7.3% at the end of 2018 from 9.2% a year earlier.
This is the tightest market since 2008 and just above the lowest suburban vacancy rate on record set in 2006 (7.1%).
“While the development pipeline in Metro Vancouver has typically maintained a relatively steady stream of new supply, a gap in both new-product delivery and availability has formed in key markets such as Downtown, Yaletown, Burnaby, Richmond and, to a lesser extent, Vancouver-Broadway and Surrey,” states Josh Sookero, a Principal based in Avison Young’s Vancouver office who specializes in suburban office leasing. “Vacancy in Surrey dropped to 6.8% at yearend 2018 from 10.1% a year earlier, a continuation of the rapid declines in vacancy recorded in a market that posted a vacancy rate of 15% just 24 months ago.”