OFFICE MARKET REPORT Q4 metro vancouver - NAI Commercial
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Q4 metro vancouver OFFICE MARKET REPORT 4 2019
METRO VANCOUVER
office market report | quarter four 2019
The beginning of a new decade is an excellent time to reflect, katchewan, Quebec, Manitoba or Alberta how they did it,
not only on 2019 but on how our market has changed over the and how over 600 world-class cities have been able to
last 10 years. During Q1 2010, the Greater Vancouver vacancy adopt it. At some point, this simple issue becomes a joke
rate overall was 10.0%. In Q4 2015, the rate peaked at 12.0%, and a reminder of the challenges of accomplishing anything
and in Q2 2019 it hit a low of 5.5%. We finished Q4 with modest through government channels.
gains to 6.0% overall vacancy.
We encourage you, anytime you can’t get a taxi, or are
The last quarter of 2019 proved interesting. Canadians re-elected tired of the taxi offering, write to the Premier: premier@gov.
Justin Trudeau for another term, despite the 2015 electoral bc.ca and the Transportation Minister Claire Trevena: claire.
promise to balance the budget by 2019/2020. Come election trevena.MLA@leg.bc.ca and let them know that you would
time 2019, it was predicted the deficit (not balanced) will be like the option of using Uber and Lyft.
$19.8 billion. Post-election on December 16th, Finance Minister
Moving on, Vancouver’s City Council recently approved a 7%
Bill Morneau provided an update: for the period ending March
property tax increase. We commend all the good services
2020, the deficit will be closer to $26.8 billion, not balanced. The
that the City of Vancouver offers, but budget and cost control
2010s were Canada’s worst decade for economic growth since
cannot be handled by a council with limited elected terms.
the 1930s. Furthermore, government spending does not seem
A 7% increase is a good indication that costs are not being
to be trickling down to BC, as job growth locally was just 0.3%.
properly monitored or controlled within the city. Perhaps it
On the provincial side, with the start of a new decade companies is time that large capital projects be costed and vetted with
are now fully saddled with paying the MSP for their employees. outside service providers. When it takes years to retrofit the
As well, the NDP is supporting its backers and steering billions Burrard Street Bridge, you have to wonder and challenge the
of dollars towards union workers for key infrastructure projects status quo. It may not be about the items on the budget but
under the new Community Benefits Agreement, which stipulates value and practicality. Who is challenging costs and expendi-
workers must be unionized. It is also interesting to see the BC tures to make sure value is being received? Whether it is the
Teachers’ Federation, a long-time supporter of the NDP, having seismic work on the Granville Street Bridge or the water main
to campaign against the NDP to negotiate their contract. replacement on West Georgia (that will take four months to
go four blocks), is the city being a good steward of your tax
If you had trouble getting a cab during the holiday season, you are
dollars? We’d like to see the city start serving the interest of
right to be disappointed in the provincial government’s delay, and
the tax payers, get costs under control and look where they
what some feel is the blocking, of ride-sharing. Despite promises
can remove and reduce the “nice-to-haves” and put in place
that ride-sharing would arrive in 2017, then 2018, and finally
policy that provides an incentive to all departments of the city
2019, the province has failed to deliver the much-needed ser-
to reduce their expenditures and reward them for efficiencies.
vice. Recently, the NDP announced that Green Coast Ventures
We commend the City of Port Coquitlam for limiting their tax
has been approved for Tofino, Ucluelet and Whistler. This is not
increase to 0.48%, and we hope that Vancouver City Council
ride-sharing, and this is not relevant to British Columbians. An
can work diligently and review on a deeper level their budget
unproven ride-sharing company with no intention to scale will
and work with departments to find greater efficiencies.
not be effectively able to meet demand; who in the world would
look for a Green Coast app? Instead, it would seem better that So for 2020, we wish you well, we wish for Uber and Lyft
the government simply allows the widely requested Uber / Lyft to be able to operate in our city, and we look forward to the
combo to serve our market. Uber / Lyft primarily win not on a announcement of lower taxes and less bureaucracy. Lastly,
cost basis, but by reducing the friction of the experience, and a may permits be issued quickly by City Hall and may all of
local solution is not the answer. If the province is so challenged you prosper.
in approving ride-sharing, perhaps they could ask Ontario, Sas-
Moving on to the Metro Vancouver Office market.
% Change Spaces Spaces % Change Total Area # of Spaces
Vacancy Rate Vacancy Rate from Previous Added Added from Previous Space Added Leased
Q3 2019 Q4 2019 Quarter Q3 2019 Q4 2019 Quarter Q3 2019 (SF) Q4 2019
Downtown 3.90% 4.00% 2.56% 130 147 13.08% 492,244 86
Suburban 8.40% 8.60% 2.38% 213 119 -44.13% 790,122 62
Vancouver 4.30% 4.70% 9.30% 34 45 32.35% 306,385 19
Periphery
2 | NAI Commercial Metro Vancouver Office Report | Q4 2019
DOWNTOWN
snapshot
Availability Rate Availability Rate Inventory Size Inventory Size
Office Class
Q3 2019 Q4 2019 (SF) Q3 2019 (SF) Q4 2019
A 3.3% 3.3% 15,644,316 15,659,462
B 2.6% 3.0% 6,866,149 6,866,149
C 8.9% 9.3% 3,545,070 3,519,413
In Q4, the downtown market saw a slight uptick in vacancy, increasing to Q4 2019 Absorption
4.0% from 3.9% (Q3) and 3.8% (Q4 2018). New spaces added to the market ADDED LEASED REMOVED ABSORPTION
were up 17 to 147 in the quarter, bringing 492,244 SF to the market, while
800,000
86 spaces leased, and 19 spaces removed, resulting in a slight negative
absorption of 92,589 SF. The vacancy rate in Q1 2010 was 6.8% on an
inventory of 23,785,847 SF. We finished the decade at 4.0% vacancy with an 600,000
inventory of 26,045,024 SF. Within the decade, vacancy peaked in Q4 2015
at 11.1% and occupied space increased by 2,259,177 SF, which equals a
400,000
growth rate of 12.7%.
Average Size of Average Size of Average Size of
200,000
Market Space Added in Space Leased in Space Removed in
Q4 2019 (SF) Q4 2019 (SF) Q4 2019 (SF)
Downtown 3,349 2,789 4,447 0
Suburban 6,640 3,285 6,162
Vancouver -200,000
6,963 2,274 11,528
Periphery
-400,000
Below is a graph tracking Greater Vancouver vacancy rates by quarter over Downtown Suburban Vancouver
the decade, laid over the occupied space per quarter for the same period. Periphery
Vacancy Rates by Quarter vs. Occupied Space by Quarter
Greater Vancouver (2010 –2020)
60,000,000 12.00%
58,000,000 10.00%
56,000,000
8.00%
54,000,000
6.00%
52,000,000
50,000,000 4.00%
48,000,000 2.00%
46,000,000 0.00%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Inventory Size (SF) Occupied Space (SF) Vacancy Rate
# Spaces Total Area # of Spaces # of Spaces Total Area Total # of Total Area Absorption
Leased Space Removed Removed Spaces Spaces Taken Off for the
Q4 2019 Leased (SF) Q3 2019 Q4 2019 Removed (SF) Removed Q4 2019 (SF) Quarter (SF)
Downtown 113 315,160 16 19 84,495 102 399,655 -92,589
Suburban 86 280,715 13 21 129,400 75 410,115 -380,007
Vancouver 24 54,582 5 6 69,168 24 183,982 -122,403
Periphery
Total -594,999
Statistics provided by Altus Insite
Q4 2019 | NAI Commercial Metro Vancouver Office Report | 3DOWNTOWN VACANCY RATES SUBURBAN VACANCY RATES PERIPHERY VACANCY RATES
Quarterly: 2.56% Quarterly: 2.38% Quarterly: 9.30%
Q3 2019: 3.90% | Q4 2019: 4.00% Q3 2019: 8.40% | Q4 2019: 8.60% Q3 2019: 4.30% | Q4 2019: 4.70%
Yearly: 5.26% Yearly: 11.69% Yearly: 95.83%
Q4 2018: 3.80% | Q4 2019: 4.00% Q4 2018: 7.70% | Q4 2019: 8.60% Q4 2018: 2.40% | Q4 2019: 4.70%
Significant Transactions
` PI Financial Corporation made a commitment to relocate to 753
Seymour St, Vancouver Centre II for about 45,000 SF, joining
B2Gold who committed there as well for 37,000 SF
` Collliers is rumoured to have committed to 41,000 SF at 1090
West Pender St
` Charest Reporting will relocate to 28,000 SF within 885 West
Georgia St
` Procurify expanded to 22,000 SF at 717 West Pender St
` Vancouver Fraser Port Authority leased the 25th floor of 1066
West Hastings St
` D22 leased the 19th floor of 355 Burrard St
` Hudson Pacific leased 72,000 SF to a technology company in
Bentall IV and secured Epic Games in 505 Burrard St for 7,500 SF
Speaking of Hudson Pacific, we’ve noticed more activity at Bentall,
where the complex has a sense of a new beginning. If you have not
looked up, check out the new signage on top of Bentall IV. “Hudson
Pacific Properties” is making their mark on the skyline, and it does
not stop there. The landscaping in front of Bentall II is being replaced,
crown LED’s are being installed, and rumours of more repositioning
plans for the retail and common areas are to follow. It is great to see
the iconic complex getting new energy and innovation.
Despite the leasing activity, it is still a challenge for your typical tenant
to find quality space at a reasonable cost. Most tenants renewing
or relocating face an increase in their taxes and operating costs, as
well as their basic rent. These escalations are seeing rents increase
for many in the 30%–70% range depending on when they executed
their previous lease, and that is forcing many business to consider
their options and how to be more efficient in their premises, and if in
fact they need their premises.
An interesting note: the downtown core inventory size is currently
26,045,024 SF, and Amazon is slated to occupy 14,000,000 SF in
Seattle. That would represent nearly 54% of Vancouver’s total inventory!
With Amazon bailing on its HQ2 plans in NYC, many believe they have
turned to Vancouver as an unofficial HQ2. With their commitment to
both properties at the Post building representing over a million square
feet, their existing offices will be poised to be the largest single tenant Growth in Occupied Space
in our market. How much larger will Amazon get in Vancouver?
Metro Vancouver (2010–2020)
10-Year % of Growth In % of Increase % of
Inventory Occupied Space
Market Inventory Inventory Occupied in Occupied Occupied
Size (SF) (SF)
Growth (SF) Growth Space (SF) Space Space
Downtown 2,259,177 27.76% 2,834,814 29.10% 26,045,024 25,003,223 44.46%
Suburban 3,493,167 42.93% 4,464,530 45.83% 24,005,676 21,941,188 39.01%
Vancouver
2,384,582 29.31% 2,442,060 25.07% 9,756,451 9,297,898 16.53%
Periphery
Total 8,136,926 100.00% 9,741,403 100.00% 59,807,151 56,242,309 100.00%
Statistics provided by Altus Insite
4 | NAI Commercial Metro Vancouver Office Report | Q4 2019SUBURBAN VANCOUVER PERIPHERY
snapshot snapshot
Over in the suburban market, the vacancy rate increased The vacancy rate in the periphery market increased slightly to
slightly to 8.6% up from 8.4% in Q3. The suburban market 4.7% from a Q3 vacancy of 4.3%. However, 45 spaces were
started the decade with a vacancy rate of 14.8% and an added to the inventory totalling 306,385 SF and 24 spaces
inventory of 20,512,509 SF and finished with an inventory of leased and six spaces removed totalling 123,750 SF, leading
24,005,676 SF. Growth in occupied space over the decade to negative absorption of 182,635 SF. Reviewing the decade
was 4,464,530 SF for a total of 21,941,188 SF occupied once again, in Q1 of 2010 the vacancy rate was 7.0% with
space, an increase of 25.5% in 10 years. The vacancy an inventory of 7,371,869 SF and we finish the decade with
peaked in Q3 of 2011 at 15.8%. a vacancy of 4.7% and an inventory of 9,756,451 SF, growth
Total of 2,384,582 SF in inventory and 2,272,507 SF in occupied
# of Inventory space, a growth of 32% over the decade. The decade’s peak
Area Availability
Buildings Size (SF)
Rate in vacancy was Q4 of 2016 at 10.4%, all in all showing a steady
Burnaby 119 9,944,939 6.90% growth in the market that is very efficient.
Langley 5 198,271 10.40% The periphery market activity was made up mostly of renewals,
New
and this is due in part to a lack of quality premises available for
23 1,438,584 6.90% lease and a low vacancy rate.
Westminster
North Shore 47 2,225,058 4.60%
Richmond 74 4,417,840 13.70% Significant Transactions
Surrey 65 4,054,560 12.30% ` Lasalle College renewed for 82,000 SF at 2665 Renfrew St
Tri-Cities 11 559,052 1.40% ` The Vancouver Police renewed 74,000 SF at 2120 Cambie St
Only 113 spaces were added to inventory in Q4, total- Total
Office # of Inventory
ling 790,122 SF, and 86 spaces totalling 280,715 Availability
Class Buildings Size (SF)
SF leased and 129,400 SF removed. The net neg- Rate
ative absorption for the quarter was 380,000 SF, All Classes 171 9,756,451 4.60%
so we predict there will be an increase again in the vacancy A 70 5,623,511 1.60%
for Q1 of 2020.
B 56 2,489,219 6.40%
The most significant growth in occupied space over the C 45 1,643,721 13.00%
decade took place in the suburban market, with an increase
of 46.6%. It may be time to pay more attention to developing offices in the
periphery, especially with the coming Millenium Line Broadway
Total
Office # of Inventory Extension Project.
Availability
Class Buildings Size (SF)
Rate
All Classes
A
368
175
24,005,676
15,126,469
8.10%
9.60%
NAI COMMERCIAL
B 140 7,023,618 5.90% office team
C 53 1,855,589 5.00%
NAI Commercial appreciates those landlords who have asked
us to review and assist with their leasing program. For tenants
As to market activity there were a couple of transactions to
who have engaged us to help with their office renewals and
report but overall activity was with smaller tenants.
relocations, we remind you that we remain an interested party.
Significant Transactions We are available to answer questions and concerns, even after
your lease is signed.
` Worley Parsons leased 29,190 SF at 4321 Still Creek
Dr, where Huawei also leased 15,000 SF We continue to appreciate the reminders and suggestions of
agents to join our team. We have openings in both our Van-
` Rise People leased 25,000 SF at 3777 Kingsway couver and Langley office and we welcome the referrals of
` Translink committed to 22,000 SF at 4555 Kingsway agents looking to enhance their career in commercial real estate
that may be a good fit for our firm.
Q4 2019 | NAI Commercial Metro Vancouver Office Report | 5WEWORK
Worries or Winning?
We have recently been awed by Amazon and WeWork’s commitment to premises
By Edward Sim, NAI Commercial
in our market. Since our Q3 report on WeWork’s woes, they have been correcting
their model to be able to effectively operate in the real world. Leading up to their
proposed IPO, WeWork faced massive public backlash over their unsustainable
business model. With significant long-term lease commitments, large losses on
high-end buildouts, and questionable corporate practices (including CEO Adam
Neumann leasing space to WeWork in buildings he had personal ownership
interest in), it was understandable that the IPO was cancelled.
Our take is that WeWork will take one to two years to restructure and operate
profitably at a valuation in the low billions. For example, IWG (Regus) is a com-
Edward Sim
parable company to WeWork, with $4 billion in revenue and $4.41 billion market
Commercial Sales & Leasing
cap. Softbank has deep pockets and has already begun stabilizing WeWork by
604 691 6613
laying off 20% of the global work force and slowing down new lease signings. One
esim@naicommercial.ca
reservation is that WeWork has basically been built since 2008, rising steadily on
increasing rents and business confidence. With a recession, will WeWork’s model
be sustainable? In 2019, they reported that 40% of their leases were longer-term
commitments with large clients. Anecdotally, we know that Amazon heavily leaned
on WeWork during their transition period as they waited for their new office spaces
to come online, but what happens longer term or in a downturn?
During WeWork’s positive run, they secured space in iconic buildings in major
cities and developed productive relationships with some of the world’s biggest
landlords. We see WeWork continuing to succeed as a co-working option spe-
cifically for large tech-oriented companies as they transition and land in a new
city. In a city like Vancouver, which is still missing major corporate offices for large
tech companies (ie. LinkedIn, Google, Intel, Oracle, etc.) and which brings new
inventory online at a reasonable pace, we see WeWork remaining effective through
a downturn. Particularly in Vancouver, we see an employment environment with
lower than average wages, the benefit of a favourable Canadian dollar, and pre-
dict that tech companies will continue to place a portion of their operations here.
Vancouver Office: Brian Mackenzie Langley Office: Angie MacDonald
Cole Maedel Don MacDonald
Rob DesBrisay Conor Finucane Gary Niesner
Managing Partner Edward Sim Ken Kiers
604 691 6602 Irene Yung Ted Weibelzahl
rdesbrisay@naicommercial.ca Jesse Godin
Ruby Wang
NAI Commercial | 1075 W Georgia St, Suite 1300, Vancouver, BC V6E 3C9 | naibc.ca
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