There may be a growing divide between Vancouver’s downtown and suburban office markets, with vacancy trends diverging in the second quarter, according to CBRE Ltd.
Last quarter, Vancouver’s downtown vacancy rate increased 1.2 percentage points to 11.9 per cent, while the region’s suburban vacancy rate fell 0.9 percentage points to 9.9 per cent, according to a Wednesday report from the commercial real estate firm.
Still, downtown absorption – the amount of space being leased or sold over a period of time – was affected by some unusually large "blocks" becoming vacant, while the city centre continues to see “good leasing activity” in A and AAA-class buildings, said Jason Kiselbach, the firm’s Vancouver managing director.
Kiselbach said a “big wave” of new downtown supply was delivered around the pandemic, just as remote work exploded. Now, the market is not in a position to deliver anything new, because nothing new was started a few years ago, he said.
“I think it is kind of a good thing right now because it keeps the supply side of the market finite,” Kiselbach said.
“We know how much supply we have. There’s not a bunch more delivering while the vacancy has been elevated, compared to the previous market cycle.”
Kiselbach said he doesn’t expect any major new office buildings to be delivered downtown for “at least four years.”
He said suburban strength was concentrated in Burnaby last quarter. “That’s where we saw the most positive fundamentals,” he said.
Meanwhile, CBRE also released an industrial report July 3, which found that Vancouver trailed all other major Canadian markets last quarter in average asking net rental rate growth (-6.1 per cent year over year) and average asking sale price growth (-6.7 per cent year over year).
“We had probably the highest run-up in increases in average asking lease rates and sale prices for the past five years, so we’re probably just seeing a bit of adjustment from that as demand has pulled back a bit,” said Kiselbach.
CBRE noted that Vancouver’s industrial market still has the country’s highest average net rent and average sale price, at $19.91 and $490 per square foot, respectively.
Meanwhile, the CBRE report said Vancouver has healthy levels of industrial pre-leasing and construction.
“It’s a lot of build-to-suit facilities,” Kiselbach said, referring to custom facilities for specific occupiers who tend to be larger groups planning for the future.
“They’re doing that well in advance, and they are getting a custom facility for themselves that they lease years in advance of construction.”
