Western stampede
Vancouver may be Canada’s western-most metropolis, but it’s not like the rest of the West.
The latest CBRE Ltd. market statistics make much ado of a shift in economic leasing activity to the eastern half of the country, but Vancouver stands apart. Office markets, for example, saw negative net absorption in 2015’s first half driven by the return of 1.9 million square feet in Calgary – thrice as much as the city absorbed in 2014’s first half. Eastern Canada tenants occupied 124,462 square feet in the year’s first half, but in Vancouver, tenants hoovered up 6.5 times that volume – 815,424 square feet, to be exact.
An equally strong performance played out in industrial space, even as CBRE handed laurels to Toronto for the lowest availability rate in North America at 4.2%, alongside peninsular San Francisco.
While tenants rushed into a whopping 3.9 million square feet of Eastern Canada industrial space during the first half of the year, Vancouver looked positively angelic with 2.7 million square feet of absorption for the period – trumping every other market in the country. However, with tenants in other markets returning a net total of 1.4 million square feet, the East came out besting the West.
But cowboys, those icons of the West, don’t cry.
“There are signs of strength and there are certainly reasons to be optimistic,” noted Ross Moore, director of research for CBRE, in comments accompanying the statistics.
Indeed, as Colliers International reports, “increasing U.S. demand for Canadian exports given a favourable exchange rate environment … [is] reflected in the Metro Vancouver leasing market.”
Colliers expects rising demand for industrial space to put additional pressure on available industrial space in a market long characterized by limited availability and relatively little new development.
Generation gap
Three blocks of office space welcomed tenants in the second quarter, nudging up A-class vacancies even as Vancouver led the nation in its net absorption of office space. Pre-leasing of the newly commissioned space ran at 84%, an enviable rate as tenants in other markets gave back space.
The appeal of new digs for many tenants is their functionality, which beats that of the older properties that dominate the Vancouver market. Colliers International has estimated that the current wave of construction will put the average age of downtown’s top-tier towers at close to a quarter-century.
The point has long rankled; a 2011 report for Jones Lang LaSalle (JLL) noted that law firms were among those that would “welcome the new construction inventory as an opportunity to move and maximize efficiency.” McCarthy Tétrault LLP’s move to 745 Thurlow was mentioned, and since then Bull, Housser & Tupper LLP committed to space at 510 West Georgia while Miller Thomson LLP leased premises at 725 West Georgia.
But the market continues to evolve; while the JLL report dismissed the 8,000-square-foot floor plates at 1021 West Hastings as too small for law firms, the space was embraced by family lawyers MacLean Law.
Companies are taking less space, with 100 square feet per person – half what it was when most of the current inventory was built – not unthinkable for some tenants.
JLL reported earlier this year that the average office user in North America required 14.5% less space in 2014 compared with a year earlier, and the trend is set to continue as tenants move into newer premises. Colliers’ review of the local second-quarter office market indicates the greatest demand is coming from firms – primarily tech companies – requiring between 5,000 and 10,000 square feet.
“A decrease in demand for traditional built-out space as tenants explore options, including build-to-suit spaces in new developments” is the result, Colliers said. “Pressure remains consistent on landlords across all sub-markets to offer inducements to attract tenants to aging spaces competing against new supply andunique spaces.” •
