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Outlook 2024: Office, industrial real estate markets to adjust in 2024

Metro Vancouver’s retail segment is expected to remain stable despite inflation
B.C.'s retail asset class is expected to be the most stable asset class heading into 2024 | Chung Chow

Rapidly rising interest rates and a slowdown in economic activity were among the biggest headlines for B.C.’s commercial real estate sector in 2023.

Both trends are expected to continue this year, though industry experts say that relief is on the horizon – and that it may come in the second half of 2024.

“Slowing economic growth will affect tenant demand across all asset classes but this will be short lived as we move into 2025 and economic growth is restored,” said Kirk Kuester, executive managing director at commercial real estate brokerage Colliers in Vancouver.

“With the exception of retail, the increased supply of options for tenants in the office and industrial sectors will not last forever so take advantage of these higher vacancy levels while they exist.”

Demand for retail, industrial and – to an extent – office space will be supported by population growth this year as B.C. and Canada continue to welcome high numbers of newcomers, said Kuester.

B.C.’s population grew by 162,729 people or three per cent over the 12-month period that ended July 1, 2023. This period represents the province’s highest annual population increase since 1974, according to the B.C. government’s latest quarterly population highlight.

“As we head into 2024, it appears that interest rates peaked and inflation has peaked … but now what we’re finding is job growth is slowing, retail spending is slowing on a per capita basis but because we have such a larger population, it is propping up that spending overall. So, it continues to support commercial real estate,” said Kuester.


At the start of the new year, the region’s industrial asset class is in a state of adjustment, according to those who spoke to BIV.

“We’ve seen demand for industrial space normalize. There wasn’t this frenzied approach to take whatever you can get your hands on and more options in the market for occupiers. And we’ve seen a vacancy rate increase fairly significantly this year,” said Jason Kiselbach, senior vice-president and managing director of CBRE Ltd.

Availability rates sit at 2.9 per cent for Vancouver and vacancy rates at 1.4 per cent for Metro Vancouver, up from 0.2 per cent one year ago, according to Colliers and statistics real estate advisory firm Altus Group.

This increase in available space is due to 6.9 million square feet being added in 2023, the highest amount in 20 years, according to Kuester. In addition, Altus Group data shows that there is another five million square feet in the pipeline.

“[Vacancy is] very low, still under three per cent and I think we’re just going through a bit of a transition, some little marketplaces whereby we’re seeing a slight increase in vacancy rates, but it’s not to be of concern,” said Raymond Wong, vice-president of data solutions delivery at Altus.

The average gross lease rate for Vancouver reached $27.24 per square foot as of the third quarter of 2023, according to Wong.

Factors driving demand for industrial space in 2024 will be population growth, activity from Canada’s largest port, demand for space to support retail import and exports, e-commerce and a reboot in the region’s film industry, resulting in strong fundamentals in the medium and long terms, said Kuester.

“With a considerable amount of space still under construction, it is likely that supply will continue to outstrip demand going into 2024 and that the vacancy rate will continue to adjust higher creating modest downward pressure on rental rates. Occupiers are also being extremely conservative and cautious in planning for their space needs given the high level of rents which is adding to the excess supply situation,” said Kuester.


Similar to the industrial asset class, office real estate in Vancouver is in a transition period marked by rising vacancy and the addition of new space.

Office vacancy across Metro Vancouver rose to 8.6 per cent in 2023, the highest rate in six years. Downtown vacancy rose from roughly two per cent prior to the pandemic to 11.8 per cent, the highest rate in 20 years and one of the lowest vacancy rates in North America, according to Kuester.

These rising vacancies can be attributed to 2.7 million square feet coming on stream this year, described by Kuester as the “largest downtown development cycle in decades.” In addition, there is still 4.5 million square feet of office space in development across Metro Vancouver.

Kiselbach predicts that vacancy in the office market will peak in the back half of 2024.

Going forward, Kuester said that Colliers will be monitoring the health-care and life sciences industries, which he said are driving demand to the same extent as tenants in the technology industry.

“All the new buildings were substantially pre-leased on completion and most of the space left behind by these pre-lease tenants is now leasing up. Triple-A and A-class buildings are leasing well in contrast to the others as tenants are taking advantage of these market conditions to move up in terms of quality,” said Kuester.

When it comes to older class B and C office space, there are two options for owners who are looking to attract tenants, said Kiselbach.

“Some owners will say, ‘Look, that’s our segment of the market, we’re the lower cost option for newer companies that are looking for that.’ And other owners will spend capital to add amenities and improve the offering of the B- and C-class space and make them a little bit more competitive,” he said.


Despite higher inflation and rapidly rising rates, the retail asset class has been given the label of most stable going into 2024, according to Kiselbach.

“A lot of owners that have a diversified portfolio have said retail has actually outperformed,” he said, adding that this is largely due to a lack of new supply and retail spending that outpaced what was expected for 2023.

The average Urban Retail Colliers Index Vacancy Rate was roughly 3.9 per cent as of the end of June 2023, down from 4.7 per cent published in February 2023.

Kuester said he predicts that vacancy rates will continue to shrink as rents grow thanks to continuing demand for space from tourism and population growth in the new year, combined with low supply.

New space is set to enter the market in the medium term due to new housing legislation that promotes the construction of mixed-use buildings, according to those who spoke to BIV.

“New development is one of the few alternatives for businesses to secure locations in highly desirable locations and with the B.C. government putting new high-density development rules around transit stations, particularly the SkyTrain, those typically come with ground floor commercial,” he said. 

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