Metro Vancouver's office vacancy rate continues to soar to new 10-year highs but that is not deterring developers from building new space near transit centres or in downtown cores because those areas are seen as “hip” by the younger millennial generation.
“It’s certainly far from Armageddon [for building owners],” said Colliers International’s Vancouver managing director Maury Dubuque. “But, as tenants move out of their current premises and into their new buildings, there will be space left behind.”
Colliers recent research revealed that the region’s office vacancy rate crept up 0.3 percentage points and is now at 9.6%.
Dubuque told Business in Vancouver that he believes that the 2.2 million square feet of office space under construction in downtown Vancouver will push that rate as high as 13% when it is complete.
Concert Properties president Brian McCauley agreed and said that a disproportionate amount of future empty office space is likely to be either in the suburbs or “off the beaten track.”
He pointed to Surrey, where he believes that there is a substantial difference in vacancy between Surrey’s city centre, including its Innovation Boulevard, and outlying areas of the sprawling suburb.
“This difference will be a bigger factor when all the new office buildings get built in downtown Vancouver,” he said. “There’s a push for urbanization of office space. The workforce is being generated from the younger generation who want to work, live and play in the downtown core.”
That could mean that companies will leave the suburbs to occupy under-construction projects such as:
- 450,000-square-foot Telus Garden;
- 365,000-square-foot 745 Thurlow Street;
- 250,000-square-foot Manulife building at 980 Howe Street;
- 270,000-square-foot MNP Tower;
- 400,000-square-foot Exchange at 475 Howe Street; and,
- the 280,000-square-foot office component of Pacific Centre at 725 Granville Street.
Despite so much new office space, developers have not been deterred from wanting to build new office space downtown.
Serracan CEO Gino Nonni told BIV that his 82,000-square-foot Five Ten Seymour office development is about 95% pre-leased, and that he will launch construction early in 2015 after demolishing the current site in December.
Five Ten Seymour’s location just outside Vancouver’s central business district and Nonni’s willingness to be flexible on building design to accommodate tenant demands helped him lease 24,000 square feet to the fast-growing e-commerce venture OnlineShoes.com, 35,000 square feet to the Adler School of Professional Psychology and then smaller footprints both to his own company and to OnlineShoes.com owner Roger Hardy’s Hardy Capital Partners.
Morguard Investments and GWL Realty Advisors are rumoured to be in the nascent stage of developing other downtown office projects.
One thing that could slow the pace of downtown Vancouver office development, however, is the City of Vancouver’s move to consider levying community amenity contributions (CACs) on new office projects, said McCauley, who is chair of the Urban Development Institute’s advisory committee on CACs.
“This will absolutely discourage new development,” he said. “It is inappropriate for the city to get CACs off new office development in the downtown core.”
McCauley added that developers already pay development cost levies (DCLs), which pay for amenities such as the day-care centres that would be in higher demand if more downtown office towers are built.
Despite its recent rises, downtown Vancouver’s office vacancy rate is consistently below that of the region. It crept 0.2 percentage points higher to 6% at the end of September, compared with three months earlier.
New Westminster had the biggest quarterly office vacancy rate spike, thanks to the empty 137,000-square-foot Anvil Centre office tower becoming available.
That pushed that city’s office vacancy rate to 16.2% from 9.9% at the end of June.
Appia Developments’ 230,000-square-foot SOLO District Office tower in Burnaby is the largest office tower under construction in the suburbs.
Colliers’ data shows that only 8.6% of that space, expected to be available in early 2016, is pre-leased. •
