office market report - avison young€¦ · office market report mid-year 2016 vacancy remained...

Partnership.Performance. I 1

Vacancy rate June 30, 2016 10.4%Vacancy rate December 31, 2015 10%

Metro Vancouver Office Vacancy Summary (Mid-Year 2016)DISTRICT INVENTORY (SF) HEAD LEASE VACANCY (SF) SUBLEASE VACANCY (SF) TOTAL VACANCY (SF) VACANCY RATE (%) 6 MONTHS ABSORPTION

Downtown 22,873,627 1,715,654 63,973 1,779,627 7.8% 397,212

Yaletown 2,029,244 122,619 0 122,619 6% -25,706

Broadway 6,263,862 645,445 12,876 658,321 10.5% 29,808

Burnaby 9,256,790 1,277,604 74,240 1,351,844 14.6% 48,210

Richmond 4,215,800 363,699 102,051 465,750 11% 38,670

Surrey 2,851,607 464,094 34,325 498,419 17.5% 165,671

New Westminster 1,688,572 267,829 2,358 270,187 16% -16,505

North Shore 1,372,098 79,436 19,310 98,746 7.2% 1,834

TOTAL 50,551,600 4,936,380 309,133 5,245,513 10.4% 639,194

Metro VancouverOffice Market ReportMid-Year 2016

Vacancy remained stable in Metro Vancouver’s office leasing market at mid-year 2016. Weak demand and the delivery of vacant new buildings

in the suburbs offset an active downtown market that recorded the second most first-half absorption in a decade. Vacancy in Metro Vancouver nudged up to 10.4% at mid-year 2016 from 10.3% a year earlier (and from 10% at year-end 2015). The biggest change was in the form of the divergent paths taken by the region’s urban and suburban submarkets. Although the region recorded 639,194 sf of absorption in the first half of 2016 – with almost 90% of that absorption registered in the Downtown and Surrey submarkets – the performances of Metro Vancouver’s other suburban and intra-urban markets, such as Yaletown and Vancouver-Broadway, revealed their transitory states in what was otherwise a relatively active first half.

As the most recent development cycle came to a close in the first half of 2016, the impact of the delivery of more than 3.7 million square feet (msf ) of new inventory regionally in the past 36 months has become more apparent with new office buildings sprouting up in non-traditional locations. While overall regional vacancy is the highest it has been since year-end 2004, Metro Vancouver’s office market remained largely active with select pockets of weakness that have yet to overshadow its strong overall fundamentals.

The successful absorption of the majority of new office space downtown over the past 18 to 24 months has come at the partial expense of the other submarkets that make up Vancouver proper. Yaletown – which has not had any new construction since the Beasley was completed in 2011 – recorded rising vacancy and negative first-half absorption for the first time since 2014, which coincides with the delivery of new supply Downtown and the rise of expanding office nodes in Vancouver-Broadway. While the short-term result has been heightened vacancy, rare large-block opportunities exist in what has historically been one of Vancouver’s most popular neighbourhoods.

Metro Vancouver office market remains strong and stable as active downtown core moderates rising suburban vacancy

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ABSORPTION(DEMAND)

VACANCY(SUPPLY)

RENTAL RATES

Vacancy Absorption

7%7.8%

9.4%10%

10.4%10%

640,019

-158,905

92,870

1,334,604

639,194

234,476

-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

0.0%

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4.0%

6.0%

8.0%

10.0%

12.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

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Rate

Vaca

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Rate

Metro Vancouver - Vacancy and Absorption Trends

12-month projection based on 10-year average absorption and known net absorption in new inventory

Partnership.Performance.2 I

Vacancy TrendsDowntown vacancy declined to 7.8% at mid-year 2016, down from 9.3% re-corded at year-end 2015 and from 9.8% 12 months earlier. The main reason for the decrease in vacancy during the past six months are the occupancies in the new class AAA buildings, particularly 745 Thurlow. Overall vacancy tightened by 150 basis points (bps) from year-end 2015, which equates to a 16% reduction in vacant area. Vacancy declined in class AAA, A and B properties with a slight increase in class C buildings during the first half of 2016. Vacancy in all building classes is lower at mid-year 2016 than it was at mid-year 2015. The 200 bps decline in vacancy from mid-year 2015 is almost wholly attributable to the tenant occupancy of previously vacant new in-ventory including 725 Granville Street, 980 Howe Street, MNP Tower and 89 West Georgia Street. Other than the delivery of the 48,050-sf Telus Garden podium in the first half of 2016 (which was subsequently leased by Bench Accounting), there were no other additions to the Downtown inventory, a departure from the past 36 months that had recorded the delivery of more than 1.8 msf of new supply. Sublease vacancy declined to a record low of 3.6%, 25% of what it was at year-end 2015 and, for class AAA space, a decline of more than 90% from year-end 2015. Sublease vacancy also dropped in class A and B properties. The Downtown market is fairly balanced and while there was no preleasing activity in the first half of 2016, developers are pre-paring for the next round of new developments. Vacant and available large blocks of space – greater than 25,000 contiguous sf – remain limited but are more plentiful than they were at mid-year 2015.

Absorption TrendsAbsorption of 397,212 sf in the first half of 2016 marked the third consec-utive six-month period of positive absorption in the Downtown submar-ket. Much of that absorption was located in 745 Thurlow and 980 Howe Street. McCarthy Tétrault LLP, Kabam Inc. and Elastic Path Software occupied their respective spaces in 745 Thurlow, while ACL Services moved into 980 Howe Street. These moves will have a limited impact on Downtown vacancy as KPMG has already absorbed some of McCarthy Tetrault’s backfill space at 777 Dunsmuir Street. And while ACL Services’ departure from 1550 Alberni Street created short-term vacancy, the build-ing is in the midst of being rezoned for residential redevelopment and will likely be removed from the office inventory in the next six to 12 months.

Recent Lease Deals – Mid-Year 2016TENANT BUILDING SF

Ledcor (renewal/expansion) Guinness Tower 80,000

Blake, Cassels & Graydon LLP (renewal) Bentall 3 63,000

Bench Accounting Telus Garden podium 48,050

Gowling WLG (renewal) Bentall 5 43,000

SRK (renewal/expansion) Oceanic Plaza 29,000

BroadbandTV 1205 Melville Street 27,000

Mobify 725 Granville Street 24,500

VentureLabs (renewal/expansion) Harbour Centre 23,500

Great West Life Assurance Company (renewal) 1075 West Georgia Street 23,000

Qtrade (renewal) Bentall 1 23,000

Owen Bird (renewal) Bentall 3 23,000

Canadian Western Bank (renewal) 666 Burrard Street 21,800

Guild Yule LLP (renewal) 1075 West Georgia Street 20,000

Metrie (renewal) Bentall 4 17,000

Computershare (renewal) 510 Burrard Street 15,900

Utopia Academy 1050 West Pender Street 15,700

EF Language Schools 929 Granville Street 14,900

MCM Interiors Guinness Tower 14,500

Awesense Wireless (sublease) 1075 West Georgia Street 14,000

Factory Mutual Insurance (renewal) Bentall 5 13,400

Unbounce Marketing Solutions (expansion) 401 West Georgia Street 13,300

Concord Pacific (renewal) Manulife Place 12,800Mackenzie Fujisawa (renewal) Manulife Place 10,400

Pacific Future Energy 701 West Georgia Street 10,100

Downtown

Serracan Properties will deliver the almost completely preleased FiveTen Seymour in the second half of 2016.

Almost 400,000 sf of absorption in the first half

Absorption in class A and B buildings was also positive in the first half of 2016, while negative absorption was recorded in class C properties.

Space Availability Factor (SAF)The space availability factor, or SAF, refers to head lease or sublease space that is being marketed but is not physically vacant, and new supply that is nearing completion and available for lease. SAF declined to 3.2% (728,698 sf ) at mid-year 2016 from 3.7% (834,354 sf ) at mid-year 2015, but was elevated compared with the 2.8% (650,435 sf ) recorded at year-end 2015. Combined with vacant space, the amount of space being marketed for lease in the Downtown core is 11% (or approximately 2.5 msf ), the lowest point since year-end 2014.

Vacancy with Space Availability Factor (SAF) and Absorption:

2012 2013 2014 2015 Mid-2016 2017F

Vacancy Absorption SAF* Space Availability Factor

5.7%6.8%

9.3%7.8%

7.5%3.3%

3.4%3.4%

2.8%3.2%

2.6%

-400,000

-200,000

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Abs

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Vaca

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Rate

/ SA

F

7,753

-270,560 -309,835

1,101,041

397,217

3.9%78,383

12-month projection based on 10-year average absorption and known net absorption in new inventory, and 10-year average SAF


Downtown

Developer Building SF Prelease SF

Prelease % Completion

Serracan Properties FiveTen Seymour, 510 Seymour Street 68,000 (office) 66,500 98% Q3 2016

Century Group Ormidale Block 151 West Hastings Street 35,610 35,610 100% Q4 2016

Credit Suisse AG/SwissReal Group Canada

The Exchange, 475 Howe Street 362,000 (office) 35,750 10% Q2 2017

Bosa Properties/Arpeg Holdings

1575 West Georgia Street & 620 Cardero Street 41,780 (office) 0 0% Q3 2018

Aquilini Development and Construction

777 Pat Quinn Way (residential/office)

69,300 (office)(east tower) 0 0% Q4 2018

Jim Pattison Developments/Reliance Properties

Burrard Place, 1290 Burrard Street (mixed use)

226,000 (office including tower & podium)

0 0% Q2 2019 (phase 1)

Morguard 601 West Hastings Street 212,500 (office) - - Proposed

GWL Realty Advisors Vancouver Centre II, 753 Seymour Street 375,500 (office) - - Proposed

Bentall Kennedy 1090 West Pender Street 415,920 (office) - - Proposed

Low Tide Properties 155 Water Street 69,000 (office) - - Proposed

Boffo Developments885 Cambie Street (formerly 225 Smithe Street)

28,200 (office) - - Proposed

Oxford Properties 1133 Melville Street TBD - - Proposed

Cadillac Fairview Waterfront Tower, 555 West Cordova Street TBD - - Proposed

Bosa Developments 320 Granville Street TBD - - Proposed

Bentall Kennedy 349 West Georgia Street 500,000 (office) - - Proposed

Westbank Projects 720 Beatty Street 300,000 to 350,000 (office) - - Proposed

New ConstructionTwo remaining office buildings set to be delivered in the second half of 2016 are virtually 100% preleased. Serracan Properties’ FiveTen Seymour is 98% preleased by Adler University, Shoes.com, Hardy Capital and Serracan Properties and is anticipated to be finished by the third quarter of 2016. Century Group’s Ormidale Block redevelopment is fully leased to a single tenant and will be completed in December 2016. The sale of the former Revenue Canada Building, a 15-storey, 139,570-sf office tower at 1166 West Pender, for $71.4 million to Reliance Properties during the first half of 2016 may have a lingering impact on vacancy if it is left vacant for major renovations once the Canada Revenue Agency moves to phase two of Rize Alliance’s Containers development on Terminal Avenue in early 2017.

The largest office tower under construction in the Downtown core, the 31-storey, 372,000-sf Exchange building being developed by Credit Su-isse AG and SwissReal Group Canada, is 10% preleased and scheduled for completion in the second quarter of 2017. National Bank Finan-cial has preleased 45,000 sf of office and retail space. Bosa Properties and Arpeg Holdings are developing a mixed-use project at 1575 West Georgia and 620 Cardero Street that includes approximately 42,000 sf of office space. The project was supported by the urban design panel at the end of June. The project is scheduled for completion in the second half of 2018. Aquilini Development’s east tower at 777 Pat Quinn Way, which calls for 69,300 sf of office space, was awaiting its development permit at mid-year 2016. The original target delivery date was year-end 2018. Con-struction on the long-planned Burrard Place mixed-use development had commenced by mid-year 2016. Plans call for 66,000 sf of office space in the first phase of the seven-storey podium (with an additional 30,000 sf to come in phase two) and an accompanying 14-storey office tower (130,000 sf ). Phase one is scheduled for delivery in the second quarter of 2019.

Market ForecastRental rates have generally remained stable and are forecast to remain so for the next six to 12 months. Vacancy is expected to slowly tighten during the next six to 12 months as there is no new vacant inventory being added to the submarket until the delivery of the Exchange office tower in the second quarter of 2017. However, the impact of delivering the Exchange largely unoccupied – it is currently 90% vacant - would exert significant upward pressure on class AAA vacancy downtown and may affect the timing of the next wave of development as developers watch and wait. With more than 1 msf of new office space already in various stages of the permitting process with the City of Vancouver, the next development cycle is already taking form and will continue to alter the city’s skyline for years to come. That total does not include significant new projects proposed by Oxford Properties, Cadillac Fairview and Bosa Developments that are currently being conceived or redesigned as the case may be plus significant mixed-use projects such as Bentall Kennedy’s redevelopment of the Canada Post building.

CLASS INVENTORY HEAD LEASE VACANCY (SF)

SUBLEASE VACANCY (SF)

TOTAL VACANCY (SF)

TOTAL VACANCY (%)

SIx MONTHS ABSORPTION (SF) SAF (SF) SAF (%) AVERAGE NET

RENTAL RATE (PSF)GROSS OCCUPANCY COST (PSF)

AAA 4,728,576 216,675 9,000 225,675 4.8% 269,510 85,400 1.8% $28 - $46 $48 - $71

A 8,032,003 833,414 10,882 844,296 10.5% 69,510 289,360 3.6% $22 - $38 $40 - $62

B 6,829,205 390,274 36,024 426,298 6.2% 83,474 207,953 3.0% $18 - $32 $35 - $54

C 3,283,843 275,291 8,067 283,358 8.6% -25,277 145,985 4.4% $14 - $25 $26 - $41

Total 22,873,627 1,715,654 63,973 1,779,627 7.8% 397,217 728,698 3.2% - -

Century Group’s Ormidale Block boutique office building has been preleased by a single tenant.

Vacancy tightening as development cycle winds down


Downtown Development Timeline

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Proposed Downtown Developments


Vacancy spikes as new construction delivered vacant

Vacancy TrendsAt mid-year 2016, vacancy spiked to 10.5% – its highest point since reach-ing 13.2% at year-end 2004 – and was driven almost entirely by the delivery of new vacant office developments in the Vancouver-Broadway submarket. Renfrew Centre, which contains more than 160,000 sf of office space, and Marine Gateway, which has approximately 256,000 sf of office space, were both delivered in the first half and were vacant at mid-year 2016. While Westport Innovations will occupy 115,000 sf in Marine Gateway in the second half of 2016, Renfrew Centre is without any tenant commit-ments. Tenants who chose to relocate due to space constraints (particularly along the Broadway corridor) also contributed upward pressure to class A vacancy. Class A vacancy climbed to 14.1% at mid-year 2016 from 3.7% a year earlier primarily due to the delivery of new vacant inventory, while vacancy tightened year-over-year in class B and C properties. First-half de-mand remained stable as has been the case since mid-year 2012. Sublease space remained a non-factor. There are several large blocks of space avail-able in the submarket, but none are located along the Broadway corridor itself, where vacancy remains tight and options limited.

Absorption TrendsAbsorption remained positive in the first half of 2016 with the bulk of the activity the result of smaller tenants (less than 5,000 sf ) occupying space in the geographically diverse submarket. First-half absorption (29,808 sf ) has been positive since 2012, but was the lowest recorded since mid-year 2013 (5,437 sf ). Zymeworks and the Provincial Health Services Authority were responsible for much of the absorption noted in the first half of 2016.

New ConstructionCressey Development will deliver its fully leased office building, The Fifth by year-end 2016. DHX Media has leased the entire 76,000-sf, four-storey building and should occupy the building in early 2017. Construc-tion of phase two of Rize Alliance’s Containers development is well underway. The 143,000-sf, eight-storey office tower is fully leased by the Canada Revenue Agency and is scheduled to be completed by the end of 2016 with occupancy set for the first half of 2017. BlueSky Properties has kicked off construction on 988 West Broadway, a 10-storey, mixed-use building with 94,120 sf of office space, which is scheduled for comple-tion by the end of 2017. Industrial Alliance has leased 75,000 sf in the building. Construction of PCI Group’s new seven-storey 160,000-sf office

Recent Lease Deals – Mid-Year 2016TENANT BUILDING SFKit & Ace 569 Great Northern Way 95,000

Zymeworks Inc. (renewal/expansion) 1385 West 8th Avenue 23,000

D&H Group LLP (renewal) 1333 West Broadway 18,300

Michael Smith Foundation (renewal) 1285 West Broadway 13,500

Aquinox Pharmaceuticals (expansion) 887 Great Northern Way 10,950

Zymeworks Inc. 1770 West 7th Avenue 10,570

Capital Direct Lending Corp. (expansion/renewal) 555-575 West 8th Avenue 9,200

Rovio Animation (sublease) 555 West 12th Avenue 7,400

Chard Development is proposing a 54,000-sf office/light industrial strata development in Mount Pleasant.

building at 569 Great Northern Way has also commenced and is sched-uled for completion in spring 2018. The mixed-use development, which includes a retail component in the office building as well as a smaller standalone retail building, has been 60% preleased by Kit & Ace. A four-storey building featuring 60,360 sf of office space has also been proposed at 1933 Fraser Street near Great Northern Way Campus. The phased construction of Bentall Kennedy’s new office park at 3030 East Broad-way, which is adjacent to the existing Broadway Tech Centre, remains in the permitting process with the City of Vancouver and is nearing completion of the building permit drawings for its first two phases. Plans call for five buildings totalling approximately 962,300 sf. Ivanhoé Cam-bridge remains in discussions with the City of Vancouver after deciding to scale back its redevelopment aspirations at Oakridge Centre.

Much of the new construction in the Vancouver-Broadway submarket is focused in the burgeoning Mount Pleasant office node. Rendition Developments’ The Mirror, an 18,000-sf office/light industrial build-ing located at 7 West 6th Avenue, will be ready for fixturing in the third quarter of 2016. Rendition Developments is also building a four-storey, 27,630-sf office/light industrial building at 204 West 6th Avenue, which is scheduled to be completed in the third quarter of 2017. PC Urban’s The Lightworks Building, a 54,000-sf office/light industrial building at 22 East 5th Avenue, will likely break ground in the third quarter of 2016 and be ready for occupancy by the fourth quarter of 2017. No prelease com-mitments had been announced by mid-year 2016.

The next wave of new office/light industrial buildings proposed for Mount Pleasant include Chard Development’s proposed 54,000-sf, four-storey strata development at 34 West 7th Avenue and Champion Development Group’s proposed 54,290-sf, four-storey building at 151 West 5th Avenue. Kevington Building Corp. is taking a wait-and-see

Vancouver - Broadway

Vacancy and Absorption Graph:

Vacancy Absorption

3.3%

5.1%4.6% 4.5%

10.5%9.8%

229,994

-16,768

410,466

-38,637

29,808 39,875

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

Rate

Vaca

ncy

Rate



Rampant development continues in Mount Pleasant with this 54,290-sf office/light industrial building proposed at 151 West 5th Avenue and scheduled for delivery in the first half of 2018.

approach to any potential revisions to the zoning of the site of its pro-posed Q4 Block development at 125 East 4th Avenue after Westbank and Hootsuite jointly acquired a number of adjacent properties directly across the street. A number of other sites remain under active develop-ment consideration in the Mount Pleasant area.

Market ForecastRental rates are projected to remain largely stable for the next six to 12 months. Leasing activity related to larger tenants (those greater than 10,000 sf) is expected to rise in the six to 12 months with many seeking to negotiate early renewals – as much as three to five years in advance – with their landlords in an effort to lock in costs during a period of slack in leasing market activity and large-block availability. Vacancy is forecast to decrease slightly as tenants expand and new tenants relocate to the submarket due to ongoing economic growth and improved business confidence. A sig-nificant tightening of vacancy in the short term will require that the vacant space remaining in Marine Gateway – Westport Innovations is vacating its existing office in the submarket so there is little impact on overall vacancy – is leased up. More importantly, Renfrew Centre will need to be leased or it risks continuing to contribute to elevated class A vacancy similar to the Anvil Centre in New Westminster. Many developers are also taking posi-tions along or near the Broadway corridor in anticipation of an announce-ment regarding the construction of a proposed Broadway rapid transit line

that would likely run underground from Arbutus Street to the west and connect with the VCC-Clark SkyTrain station. An announcement related to this proposed transit project could trigger additional development activity.The dispersal of the supply of office space throughout the submarket marks a divergence from the typical office market that until recently had been focused primarily along the Broadway corridor itself. That is no longer the case as large office buildings are erected in East and South Vancouver.

Developer Building SF Completion

Rendition Developments The Mirror, 7 West 6th Avenue (Mount Pleasant)

18,000 (office/light industrial) Q3 2016

Cressey The Fifth, 380 West 5th Avenue (Mount Pleasant)


Rize Alliance Containers (phase II), 468 Terminal Avenue 143,000 Q4 2016

Rendition Developments 204 West 6th Avenue(Mount Pleasant)


PC Urban Properties Corp.The Lightworks Building, 22 East 5th Avenue(Mount Pleasant)


BlueSky Properties Broadway Commercial, 988 West Broadway 94,120 (office) Q4 2017

PCI Group 569 Great Northern Way 160,000 Q2 2018

Champion Development Group Inc.

151 West 5th Avenue (Mount Pleasant)


Chard Development 34 West 7th Avenue(Mount Pleasant)

54,000 (office/light industrial Q3 2018

GNW Trust Centre for Digital Media, 1933 Fraser Street 60,360

Awaiting prelease commitment

Bentall Kennedy 3030 East Broadway (five buildings) 962,300 Proposed

Kevington Building Corp. Q4 Block, 125 East 4th Avenue (Mount Pleasant) TBD Proposed

Westbank/Ivanhoé Cambridge Oakridge Centre redevelopment TBD Proposed

Vancouver - Broadway Positive absorption maintains market balance

CLASS TOTAL RENTABLE (SF)

HEAD LEASE VACANCY (SF)


TOTAL VACANCY (SF)

TOTAL VACANCY (%)

SIx MONTHS ABSORPTION (SF)

AVERAGE NET RENTAL RATE (PSF)

GROSS OCCUPANCY COST (PSF)

A 4,066,021 561,775 9,672 571,447 14.1% 3,699 $22 - $30 $39 - $48

B 1,715,203 71,762 3,204 74,966 4.4% 29,700 $18 - $23 $31 - $38

C 482,638 11,908 0 11,908 2.5% -3,591 $15 - $19 $28 - $33

Total 6,263,862 645,445 12,876 658,321 10.5% 29,808 - -

Mount Pleasant Employment Area (I-1 Zoning)Since 2013, the emergence of the Mount Pleasant employment area has stimulated a number of value-add and redevelopment projects in the neighbourhood, resulting in the conversion of older industrial space to primarily office use or the redevelopment of industrial buildings to accommodate additional office uses. Many of the repositioned buildings are less than 20,000 sf and typically range from 5,000 sf to 18,000 sf. More recently, a number of buildings have been proposed that are larger than 50,000 sf. While prelease com-mitments have not been secured, interest is strong and, in at least one example, construction is proceeding on a speculative basis. As a result, vacancy remained tight despite these additions as develop-ment boosts the total size of the market. Sublease space was non-existent in this area at mid-year 2016.

Deal velocity remained strong in the first half of 2016 as the market’s popularity continued to build and vacancy tightened. Developers and value-add investors are trying to enter or expand their holdings in this desirable area, but properties are in increasingly short supply. Asking lease rates for new developments rose in the first half of 2016 to reflect in part the higher acquisition costs associated with securing properties. Rents were in the mid to high $20s psf (with inducements) for new product with rents for the increasingly limited supply of older flex space starting in the high $10s psf. The market outlook is positive for 2016 as new supply is delivered, but further rental rate growth may be limited with significant supply in the pipeline until 2018 and sources of future demand unclear.


Vacancy TrendsVacancy rose to 6% at mid-year 2016, up significantly from 4.1% at year-end 2015, but down from 7.5% a year earlier. The recent volatility in the market is related to significant tenants such as Microsoft, Double Negative and Amazon vacating the submarket to occupy new premises either Downtown or in other Vancouver office nodes such as Mount Pleasant. Deal velocity remained muted in the first half of 2016 with limited leasing activity. Significant blocks of space are being marketed for lease, including 22,000 sf at 990 Homer Street, 33,000 sf at 948 Homer Street and 43,000 sf at 858 Beatty Street. These size options are a relative anomaly in Yaletown and represent a rare opportunity for existing tenants seeking to expand or for new tenants to relocate to the submarket.

Space Availability Factor (SAF)The space availability factor (SAF) refers to head lease and/or sublease space that is being marketed, but is not physically vacant. The SAF rose to 6.1% (124,508 sf ) at mid-year 2016 from 4.2% (84,959 sf ) at mid-year 2015 and is the second highest SAF recorded since Avison Young began tracking SAF in the submarket in 2007. The highest SAF to date was 6.9% (139,110 sf ) at year-end 2014. As a result, the actual amount of available space currently being marketed (occupied and vacant) in Yaletown is 12.1% or approximately 247,000 sf, which is the highest on record.

Absorption TrendsYaletown has recorded negative absorption in the first half in four of the past five years since mid-year 2012 and for three years consecutively be-ginning in mid-year 2014. The Yaletown submarket recorded negative absorption of 25,706 sf in the first half of 2016 due primarily to negative absorption in class B properties, with very slight positive absorption in


Boeing Co. 1148-1150 Homer Street 12,500

FuseFX (expansion) 1168 Hamilton Street 6,000

Yaletown

Mobify and Chintz & Company are vacating 948 Homer Street and will create 33,000 sf of available contiguous space.

class A and C premises. The ongoing departure of significant Yaletown tenants in the first half – at least five returning more than 7,500 sf each (including 22,000 sf at 990 Homer Street) – has resulted in heightened vacancy and negative absorption. The trend of rising vacancy and nega-tive absorption in Yaletown has corresponded with the delivery of new inventory in the adjacent Downtown market and the rise of new office nodes in the Mount Pleasant, Railtown and Crosstown neighbourhoods.

New ConstructionNo new construction is currently planned for Yaletown.

Market ForecastRental rates have softened slightly as space has continued to become available in Yaletown and landlords are finding they need to compete more aggressively for new tenants and to retain existing ones. Rates are likely to continue to soften until the large pockets of space that have come available in the past six months are leased. Deal velocity is expected to pick up in the second half as a result of the wide range of options available for lease. Absorption is forecast to be positive by year-end as the majority of tenants who are vacating the market have already departed or have let their intentions be known (hence the in-crease in SAF). The overall outlook for Yaletown remains positive as it is a small submarket and when large tenants vacate, it has a disproportion-ate impact on landlord motivation and rental rates. Vacancy is expected to tighten in the next six to 12 months as Yaletown remains popular with tenants. The availability of select lease opportunities – large-block spaces – not normally present in the submarket should improve deal velocity in the second half of 2016.

CLASS INVENTORY HEAD LEASE VACANCY (SF)


TOTAL VACANCY (SF)

TOTAL VACANCY (%)


SAF (SF) SAF (%) AVERAGE NET RENTAL RATE (PSF)


A 576,938 8,224 0 8,224 1.4% 1,338 40,454 7% $25 - $32 $40- $48

B 998,357 85,082 0 85,082 8.5% -31,093 38,774 3.9% $18 - $24 $32 - $39

C 453,949 29,313 0 29,313 6.5% 4,049 45,280 10% $14 - $20 $25 - $32

Total 2,029,244 122,619 0 122,619 6% -25,706 124,508 6.1% - -

Large-block availabilities offer rare opportunities

Vacancy with Space Availability Factor (SAF) and Absorption:

Vacancy Absorption SAF* Space Availability Factor

5%4%

3.1%4.1%

6% 5.8%0.5%

3%

6.9%

3.8%

6.1%

6,785

19,732

23,928

-20,091-25,706

4,032

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

Rate

(sf)

Vaca

ncy

Rate

/ SA

F

2.3%

12-month projection based on 10-year average absorption and nine-year average SAF


Vacancy TrendsVacancy climbed to 14.6% at mid-year 2016 from 13.5% 12 months earlier due to the delivery of 224,565 sf of office space at Solo District (85% preleased). The tenants, which include Yellow Media, Capcom, Regus, CMW Insurance and Bosa Development/Embassy Bosa, are in for fixturing and will occupy in the second half of 2016. A number of renew-als and/or expansions by existing tenants in the first half offset the full im-pact of the building’s delivery. While new large tenants in the submarket have been harder to come by, there was substantial movement within the submarket from existing tenants. Deal activity remained muted in the first half of 2016 with smaller lease deals accounting for the majority of transactions along with the aforementioned renewals/expansions. Sub-lease vacancy was largely confined to class A space formerly occupied by Telus and is the only significant space available for sublease.

Absorption TrendsAbsorption of 48,210 sf – the third most recorded in Metro Vancouver in the first half of 2016 – was primarily driven by the expansion of existing tenants. While existing businesses in class A premises also expanded in Willingdon Park and renewed in the Metrotower complex, a num-ber of tenants in class B premises returned space to the market, which resulted in negative absorption in class B properties in first half of 2016.

New ConstructionAfter the delivery of more than 640,000 sf of new office space in Me-trotower III and Solo District as well as phase one of Eastlake Campus, an office and flex industrial development in Lake City, new office con-struction now remains limited to Kings Crossing, a mixed-use develop-ment that includes 63,000 sf of office space, scheduled for completion in fall 2018. The current redevelopment of Brentwood Town Centre, which could include office space in its first phase and up to two office towers upon completion; and the development of Gilmore Station, which may include office space in phase two, will provide more than 1 msf of office space in the years to come.

Market ForecastWhile rental rates have remained stable, landlords have offered improved tenant improvement allowances, free rent or delayed commencements to attract tenants. Landlords will seek to continue to maintain face rates in the

Developer Building SF CompletionCressey Kings Crossing, 7350 Edmonds Street 63,000 (office) Q4 2018

Kingswood Capital Discovery Place Business Park 50,000 Awaiting prelease commitment

Sears Canada 4750 Kingsway (Metrotown) Two office towers Proposed

Shape Properties Brentwood Town Centre One/two office towers Proposed

Onni Group Gilmore Station 996,900 (office) Proposed


Best Buy (renewal) 8800 Glenlyon Parkway 140,000

Yellow Media 2025 Willingdon Avenue 76,000

Capcom 2025 Willingdon Avenue 52,025

WorleyParsons Canada (renewal) 4321 Still Creek Drive 41,500

Allteck Line Contractors 4260 Still Creek Drive 32,820

ADP (renewal) 4720 Kingsway 25,000

Cymax Stores (renewal/expansion) 4170 Still Creek Drive 21,440

Regus 2025 Willingdon Avenue 20,000

Bosa Development Corp./Embassy Bosa 2025 Willingdon Avenue 18,800

BC Residential Tenancy Branch (renewal) 5021 Kingsway 14,700

Fortinet Technologies (expansion) 4190 Still Creek Drive 13,690

OSI Maritime Systems (expansion) 4585 Canada Way 12,770

SAAB Technologies Inc. 3500 Gilmore Way 11,070

Strive Living Society 4370 Dominion Street 11,000

Encorp Pacific 4259 Canada Way 10,310

D-Wave Technologies 4601 Canada Way 9,100

Burnaby

Solo District is the new home of Yellow Media after one of the largest office lease transactions in Metro Vancouver in the first half of 2016.




TOTAL VACANCY (SF)

TOTAL VACANCY (%)




A 6,306,081 1,010,958 73,083 1,084,041 17.2% 56,713 $16 - $35 $30 - $49

B 2,081,671 187,467 1,157 188,624 9.1% -14,258 $14 - $18 $27 - $31

C 869,038 79,179 0 79,179 9.1% 5,755 $12 - $18 $23 - $29

Total 9,256,790 1,277,604 74,240 1,351,844 14.6% 48,210 - -

Modest absorption maintains stable vacancy

coming months and increase tenant improvement allowances or induce-ments in the face of downward pressure on rates triggered by heightened vacancy and the delivery of new office space. With a very limited number of large tenant expiries in the market (until at least 2018) and few new entrants, landlords will need to focus on maintaining their existing tenant base. A considerable increase in tenant demand will be necessary to positively impact vacancy in the next 18 to 24 months, especially with the additional space proposed in various projects. The relocation of Metro Vancouver to Metrotower III will impact vacancy in the near term provided its former offices are subsequently redeveloped and removed from inventory.

Vacancy and Absorption Graph:

Vacancy Absorption

7.8%9.1%

12.6% 12.9%

14.6% 14.1%

248,017

-114,783

34,390 32,63748,210 46,609

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

Rate

Vaca

ncy

Rate



Vacancy TrendsVacancy in Richmond’s office market fell to a 14-year low at mid-year 2016. The slow but steady recovery of a submarket that, until three years ago, had posted one of the highest vacancy rates in Metro Vancouver was powered by a lack of new construction and ongoing positive absorp-tion. Vacancy decreased to 11% at mid-year 2016 from 13.8% just 12 months earlier. Richmond tenants have tended to remain in the market and either expanded in place or relocated to larger premises. Office rents in Richmond – some of the lowest in Metro Vancouver – as well as a range of options have historically attracted tenants to the market. Many are also seeking proximity to No. 3 Road, which now has very limited vacancy due to demand for office space close to rapid transit. Large-block availability at Crestwood Corporate Centre has provided options for tenants to expand or relocate in the submarket. Sublease availability exceeded more than 100,000 sf for the first time since year-end 2010. Located primarily in class A, this sublease space offers rental opportuni-ties that have been largely absent.

Absorption TrendsModest positive absorption of 38,670 sf in the first half of 2016 marked the second consecutive year of positive absorption in the first half and contributed to the ongoing tightening in vacancy. Positive absorption has been recorded in the first half in four of the past five years. Slight negative absorption in class B premises in the first half was the result of a handful of smaller tenants vacating the Richmond submarket as well some downsizing.

New Construction New construction currently remains at a standstill, but an increasing number of developers of potential office developments are filing rezoning applications with the city. Yuanheng Holdings has proposed the largest such development after it replaced a previously proposed hotel project at No. 3 Road and Sea Island Road with two office towers totalling 355,400 sf. Rezoning applications for projects such as the

One of the largest lease deals in recent memory in Richmond involved Broadcom’s renewal in Crestwood Corporate #10 in the first half.


Ampar Ventures Ltd. Ampri International Gateway Centre (office/hotel) 105,000 (office) Proposed

New Continental Properties Inc.

8320, 8340 & 8440 Bridgeport Way; and 8311 & 8351 Sea Island Way

101,540 (office/campus) Proposed

Westmark Development Group

4100, 4120, 4126, 4140, 4180 & 4220 Garden City Road and 9131, 9151 & 9191 Odlin Road

71,990 (office/commercial) Proposed

Bene Development Ltd. 4700 No. 3 Road Nine-storey building

(retail/office) Proposed

iFortune Homes Inc. iFortune Center (6840 & 6860 No. 3 Road and 8051 Anderson Road) 102,740 (office) Proposed

Yuanheng Holdings Ltd.

3031-3351 No. 3 Road, 8151 Capstan Way & 8051/8100 River Road 355,400 (office) Proposed

Canderel/Townline Group of Companies Lansdown Station mixed-use development 34,000 (office) Proposed


Broadcom (renewal) Crestwood Corporate #10 51,150

ABB (renewal) Airport Executive Park #3 29,690

Vancouver Coastal Health 7671 Alderbridge Way 15,000Cogent Industrial Technologies Crestwood Corporate #7 10,300

HUB Financial Airport Executive Park #10 6,440Sun Real Estate Funds Management Ltd. Crestwood Corporate #10 5,830Affinity Financial Airport Executive Park #10 5,300

Greater Vancouver Homecare 3851 Shell Road 4,320

Richmond




TOTAL VACANCY (SF)

TOTAL VACANCY (%)




A 2,895,256 289,894 97,258 387,152 13.4% 22,964 $16.50 - $18 $27 - $30

B 972,346 37,737 4,793 42,530 4.4% -2,879 $14 - $15 $25 - $27

C 348,198 36,068 0 36,068 10.4% 18,585 $11 - $13 $20 - $21

Total 4,215,800 363,699 102,051 465,750 11% 38,670 - -

iFortune Center, an 11-storey, 102,740-sf office tower near No. 3 Road and Anderson, and a nine-storey mixed-use office tower proposed at 4700 No. 3 Road, remain in process among a handful of others.

Market ForecastWith upward pressure anticipated on rental rates at Airport Executive Park as rates at Crestwood Corporate Centre remain flat due to pockets of vacancy, office space located in proximity to No. 3 Road will command a higher premium moving forward due to rising demand. With inexpen-sive rents, plentiful lease options and no new development underway, tenants should continue to be attracted to the submarket. Affordable rents have been a key factor in the submarket’s recovery and with a range of expansion options, including large blocks of contiguous space, existing tenants have been able to remain and grow as new tenants entered the submarket. This trend is expected to continue through 2016.

Vacancy tightens further as recovery continues

Vacancy and Absorption Graph

Vacancy Absorption

19.3%

15.4% 15.2%

12%11% 10.3%

110,703

167,121

7,545

186,883

38,67030,592

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

(sf)

Vaca

ncy

Rate

12-month projection based on 10-year average absorption


Vacancy TrendsVacancy remained elevated in Surrey – increasing to 17.5% at mid-year 2016 from 14.6% 12 months earlier but unchanged from year-end 2015 – due in large part to the delivery of the partially vacant Hub at King George Station at the end of 2015. While Coast Capital occupied 116,000 sf of class A office space in the 164,000-sf office component of the mixed-use project, the financial institution vacated its former head office in Surrey at 15117 101st Avenue as well as four floors at Central City, both of which remained vacant at mid-year 2016. Vacancy is forecast to tighten in 2016 as Westminster Savings Credit Union will backfill most of Coast Capital’s space at Central City when it relocates from New Westminster in the second half. S.U.C.C.E.S.S. will also occupy one floor of Coast Capital’s former head office before year-end. At least three other class A buildings in Surrey were more than 25% vacant at mid-year 2016. Similar conditions are also present in class B and C properties.

Absorption TrendsMore than 165,000 sf of absorption was registered in the first half of 2016, the majority of which was attributed to Coast Capital occupying the Hub at King George. The offsetting vacancy had been accounted for at year-end 2015 while the absorption was registered at mid-year 2016. Even without including the absorption at the Hub at King George Station,


Industrial Alliance Gateway Place, 13479 108th Avenue (office/retail)

56,000 (office) Q1 2017

Lark Group City Centre 2, 9639 137A Street 172,000 (office) Q1 2018

Landview Construction

GTC Professional Building, 10189 153rd Street 103,700 Awaiting prelease

commitment

PCI Group/Triovest The Hub at King George Station (phase two), 9900 King George Boulevard (office/retail)

170,000 (office) Planned

Avondale Development Corp. / Monark Group

The Professional Centre@Southpoint, 3231 152nd Street

87,500 (office) Proposed

Circadian Projects 9677/9681 King George Boulevard 178,000 Proposed

Surrey

Gateway Place is scheduled for tenant fixturing in the fourth quarter of 2016 and offers 56,000 sf of office space. first-half 2016 absorption in Surrey remained positive with tenants occupy-

ing space at Central City, Surrey Central Business Park, Benchmark Business Centre and 14928 56th Avenue. This positive absorption was largely offset by a greater number of tenants returning small spaces to the market.

New ConstructionGateway Place, a mixed-use development that includes 56,000 sf of of-fice space, will be delivered for tenant fixturing in the fourth quarter of 2016. The Lark Group’s City Centre 2 mixed-use development, which broke ground in early 2016, is scheduled for completion in the first quarter of 2018. Prelease commitments will determine when construc-tion on The Professional Centre@Southpoint commences, but it is anticipated the project could be completed by early 2018. Phase two of the Hub at King George is expected to receive a revised development permit in the fall to provide for the revised transit alignment related to the construction of two additional stations on site.

Market ForecastRental rates are anticipated to remain flat for the next 12 months as elevated vacancy and a range of tenant options remain available in all property classes. Deal velocity is likely to remain muted with some minimal leasing activity. The arrival of Westminster Savings Credit Union in the second half should help offset a significant increase in vacancy related to the delivery of new vacant inventory.




TOTAL VACANCY (SF)

TOTAL VACANCY (%)




A 2,019,968 310,520 30,656 341,176 16.9% 170,536 $19 - $28 $33 - $41

B 626,010 114,155 3,669 117,824 18.8% 701 $13 - $19 $26 - $33

C 205,629 39,419 0 39,419 19.2% -5,566 $9 - $13 $23 - $25

Total 2,851,607 464,094 34,325 498,419 17.5% 165,671 - -


ICBC (renewal) 13072 88th Avenue 21,700

Vancity (expansion) 13450 102nd Avenue 12,500

S.U.C.C.E.S.S. 15117 101st Avenue 10,800

Sprott Shaw College 13678 100th Avenue 9,900

Canadian Utility Construction 14928 56th Avenue 8,300

ICBC (renewal) 7565 132nd Street 6,400

Crowe MacKay 5455 152nd Street 6,260

Roland Music 9900 King George Boulevard 5,000

Positive absorption stabilizes volatile vacancy rates

Vacancy Absorption

11.5%

17.3%

22.1%

17.5% 17.5%18.6%

-6,879

-137,809

14,47536,751

165,671

13,545

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

(sf)

Vaca

ncy

Rate




Vacancy TrendsVacancy remained unchanged year-over-year at 16% at the midway point of 2016. Mid-year vacancy has been stable but elevated at approximately 16% since mid-year 2014 when the still vacant Anvil Centre was completed. Deal velocity has been muted with very little activity and no significant lease transactions. Class B vacancy rose sub-stantially due primarily to the School District No. 40 (New Westmin-ster) vacating its former offices and downsizing. There is virtually no sublease space available. Vacancy will likely increase with the departure of Westminster Savings Credit Union when it completes its reloca-tion from New Westminster to Surrey in the second half of 2016. With more than 70% of vacancy in class A buildings (and more than 70% of class A vacancy located in the Anvil Centre), there is little other build-ing owners and landlords can do to address the submarket’s elevated vacancy until office space in the Anvil Centre is leased and/or stratified.

Lack of leasing activity leads to elevated vacancy

The 137,000-sf Anvil Centre office remains vacant and continues to inflate class A vacancy in New Westminster.


Bentall Kennedy97 Braid Street (near Braid Street SkyTrain station) part of proposed Sapperton Green mixed-use development site

Up to 400,000 (office) Proposed


School District #40 (New Westminster) Columbia Square Plaza 6,500

Sider Strength and Conditioning 739 Carnarvon Street 3,000




TOTAL VACANCY (SF)

TOTAL VACANCY (%)




A 780,114 189,097 2,358 191,455 24.5% -554 $18 - $25 $31 - $38

B 700,684 64,231 0 64,231 9.2% -15,951 $11 - $17 $24 - $29

C 207,774 14,501 0 14,501 7% 0 $8 - $12 $20 - $24

Total 1,688,572 267,829 2,358 270,187 16% -16,505 - -

Absorption TrendsNegative absorption of 16,505 sf in the first half of 2016 marked the first time that negative first-half absorption has been recorded in New Westminster since 2006. The negative absorption was triggered by the decision of School District No. 40 (New Westminster) to downsize its office space in Columbia Square Plaza. A couple of occupancies in the first half helped to offset the full impact of the negative absorption. It is expected that the decision by Westminster Savings Credit Union to relocate to Surrey will contribute additional negative absorption in the second half of 2016.

New ConstructionThere is currently no new office construction underway in New Westminster. Redevelopment plans involving Bentall Kennedy’s proposed mixed-use community, Sapperton Green, were postponed as a result of an industrial tenant choosing to extend and expand its lease commitment to a warehouse located on a portion of the pro-posed redevelopment site. However, a valid and active development permit for two office buildings up to 400,000 sf still remains in place for the property, but a prelease commitment would be necessary to start construction.

Market ForecastRental rates are forecast to remain unchanged as landlords work to secure existing tenants. Vacancy remains healthy in class B and C properties, but overall deal activity remains slow and velocity is not anticipated to improve in the second half of 2016. Class A vacancy will remain a weakness in the submarket. Overall vacancy is anticipated to rise in the second half due to the departure of Westminster Savings Credit Union from the submarket. New Westminster will also likely record negative annual absorption in 2016 at a level that may surpass the negative annual absorption of 33,147 sf posted in 2011, the last time negative annual absorption was recorded in New Westminster.

New Westminster

Vacancy Absorption

20.8%

9.3%

16.8%15%

16%14.3%

52,537

178,035

-1,478

29,444

-16,505

29,253

-50,000

0

50,000

100,000

150,000

200,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

Rate

(sf)

Vaca

ncy

Rate





Arc'Teryx Equipment (renewal/expansion) 2155 Dollarton Highway 60,500

COWI North America Ltd. 1308 Lonsdale Avenue 37,000

North Shore Multicultural Society (renewal) 123 East 15th Street 17,000

North Shore Eye Associates (renewal/expansion) 1111 Lonsdale Avenue 6,460

Design Maintenance Systems Inc. (renewal) 38 Fell Avenue 6,460

Intrahealth Canada Ltd. (renewal) 889 Harbourside Drive 4,980

Sperling Hansen Associates Inc. (renewal/expansion)

1225 East Keith Road 3,500

Harcourts Real Estate 267 West Esplanade 2,900

Genoa Design International Ltd. 949 West 3rd Street 2,370

Vacancy TrendsVacancy rose to 7.2% at mid-year 2016 from 6.8% a year earlier, but was virtually unchanged from 7.3% at year-end 2015. Moderate activity in class B properties resulted in minimal changes in vacancy. There was limited movement by tenants in the market and no notable expansion of exist-ing tenants. Sublease space availability remained minimal and virtually unchanged from year-end 2015, but up substantially from mid-year 2015. Vacancy is expected to tighten in 2016 as business confidence results in the North Shore transitioning from a tenant’s market to a balanced market.

Absorption trendsAbsorption remained minimal but positive in the first half of 2016. While there were moderate levels of leasing activity in the first half of 2016, absorption remained balanced with smaller transactions being offset by tenants downsizing or relocating from the submarket. Positive first-half absorption has been recorded in four of the past seven years, including 2010, 2011, 2015 and 2016.

New Construction Three projects remain under construction with two containing strata office space and the third, Onni Group’s CentreView mixed-use development, offering 78,800 sf of office space, of which 50% is already


Harbourview Projects East Esplanade, 350 & 370 East Esplanade

22,443 (strata office/showroom) Q2 2017

Polygon West Quay, 260 West Esplanade (mixed use)

38,000 (strata office/retail) Q3 2017

Onni Group CentreView, 1308 Lonsdale Avenue (mixed use) 78,800 (office) Q3 2017

Concert Properties801, 889 & 925 Harbourside Drive and 18 Fell Avenue (mixed use)

204,000 (office) Proposed

Hollyburn Properties Ltd. 1301-1333 Lonsdale Avenue 14,100 (office) Proposed

North Shore

The recent sale of 1343 Lonsdale Avenue highlighted the demand for office space among both owner-occupiers and investors.

preleased. COWI (formerly Buckland & Taylor) has secured the top two office floors of the project. About 90% of the retail space has also been leased. CentreView is scheduled to be delivered in the third quarter of 2017. The two strata projects, East Esplanade and West Quay, will offer 22,722 sf and 18,340 sf of office space, respectively. East Esplanade, which is anticipated to come to market in the second quarter of 2017, will also offer flex industrial space, while a portion of office space at West Quay, scheduled for delivery in the third quarter of 2017, will be earmarked for non-profit/civic use. Concert Properties’ Harbourside development is in the development permit design process for phase one, with groundbreaking anticipated in late 2017.

Market ForecastRental rates are likely to remain stable for the next six to 12 months with minimal absorption until the arrival of new supply begins in 2017. While vacancy is anticipated to tighten to year-end 2016, vacancy will stabilize until mid-year 2017 before beginning to rise by year-end 2017. There will also be continued strong demand for strata office space. The North Shore office market has returned to a relatively balanced market with continued demand for ownership opportunities. Landlords will be keen to secure new and existing tenants with new supply – both lease and strata – scheduled to arrive in 2017.




TOTAL VACANCY (SF)

TOTAL VACANCY (%)




A 793,013 31,585 15,758 47,343 6% -3,326 $22 - $25 $35 - $39

B 481,395 40,022 3,552 43,574 9.1% 1,284 $18 - $20 $31 - $33

C 97,690 7,829 0 7,829 8% 3,876 $16 - $17 $30 - $32

Total 1,372,098 79,436 19,310 98,746 7.2% 1,834 - -

Vacancy stable in transition to balanced market

Vacancy Absorption

9.6%

8.5%7.8%

7.3% 7.2% 6.8%-8,891

16,128

-86,621

6,576

1,834

4,886

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2012 2013 2014 2015 Mid-2016 2017F

Abs

orpt

ion

(sf)

Vaca

ncy

Rate




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Special Feature

Technology firms facing housing affordability challenges head on

With technology firms often touted as a significant source of future demand for office space in Metro Vancouver, issues around hous-

ing affordability and employee attraction and retention have loomed particularly large around the thriving but still nascent global tech hub. For some local tech firms however, it is business as usual.

The BC government’s announcement on July 25 of the imposition of a 15% tax on residential property transfers to foreign nationals, foreign corporations or taxable trustees effective August 2 has further compli-cated the issue. Many tech workers, including those in senior leadership positions, are often recruited internationally and now have to weigh not only the high cost of housing, but also the additional tax burden when they consider whether or not to relocate to the region for employment.

Bloomberg reported August 3 that “Vancouver’s technology industry is in danger of becoming collateral damage” as a result of the 15% levy and that the “city already has two major strikes against it: some of the highest housing costs and lowest wages among North America’s emerging technology hubs.” Other issues identified in the Bloomberg article included the need for additional investment in regional public transit infrastructure and local resistance to highrise development.

But despite the challenges posed by affordability issues and an extraor-dinarily tight residential vacancy rate – Vancouver City’s vacancy rate was 0.6% in October 2015, according to the most recent data from the Canada Mortgage and Housing Corporation – some BC tech firms have managed to continue to expand their operations in spite of the obstacles the city faces related to housing affordability.

The city’s legacy as a technology hub has also driven the company’s decision to remain in Vancouver. “Vancouver is the best place in the world to start an analytics company,” Cunningham added. “Thanks to the legacy of companies such as Crystal [Decisions], Vancouver has become a hotbed for BI [business intelligence], data and analytics talent and we plan to keep Stytch based in Vancouver.”

Other local tech firms have had a similar experience.

According to Cameron Lawrence, Vice-President and General Manager, for Vancouver-based PNI Media, the company has not had to specifi-cally address any issues around housing affordability when it comes to retaining and attracting talent, but key for the company has been its office’s proximity to transit.

He also indicated that the firm, which offers a software platform for enter-prise and photo printing and was acquired by Staples Inc. in 2014, has not had to alter its expansion plans due to difficulties securing employees who were facing housing issues related to cost or availability.

“Issues around housing affordability have had a minimal impact on ex-pansion plans,” Lawrence said. “However, the ability to attract and retain talent is extremely challenging in this climate.”

“When looking for new office space, one of our top priorities was proximity to public transit,” said Mark Cunningham, founder and CEO of Stytch Inc., a Vancouver-based data analytics platform company. “We wanted to make it easy for those who live outside of the city – and enjoy cheaper house prices as a result – to commute to work.”

Cunningham added that he felt the tech industry had not been as impacted by rising housing prices as much as other industries. “I believe this is due to the comparatively high salaries in the tech sector.”

He also indicated that Stytch had yet to lose any staff to other cities or provinces as a result of housing affordability issues and that new team members relocating from cities such as Calgary and Toronto have not yet faced any major issues in regard to securing housing. “It really hasn’t affected us as yet,” he said.

The company has not altered its expansion plans due to difficulties securing employees who may face affordability issues, according to Cunningham. Nor has he considered moving the company’s office outside of Vancouver.

“Having an office in Downtown Vancouver has actually made it easier for us to attract talent,” he said. “Recruitment within the technology sector is very competitive at the moment, but being based in the heart of the city, with all its amenities on our doorstep, is actually seen as a huge perk to the vast majority of people that we interview.”

The new Telus Garden , which is also home to Amazon and Bench Accounting , highlights tech’s rising prominence in the downtown core .

“When looking for new office space, one of ourtop priorities was proximity to public transit”

Mark Cunningham, founder & CEO, Stytch Inc.

continued from page 1

© 2016 Avison Young. All rights reserved.

E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C.) Inc.; DBA, Avison Young.

avisonyoung.com

The delivery of significant new supply in the geographically diverse Vancou-ver-Broadway submarket spiked vacancy to its highest point since year-end 2004, but is also responsible for the dispersion of new office construction throughout the city. From Renfrew Centre in East Vancouver to Marine Gateway in South Vancouver to the burgeoning Mount Pleasant and Great Northern Way office nodes in East Vancouver, the Vancouver-Broadway sub-market has never offered more options to tenants in more diverse locations despite limited options on the Broadway corridor itself. While, in the short term, heightened vacancy is a result of this new supply, Vancouver-Broadway now offers viable alternatives outside the core for tenants seeking large-block office space in transit-orientated, amenity-rich neighbourhoods.

Despite elevated but stable vacancy in Burnaby, the delivery of more than 640,000 sf of new office space provided alternative options for tenants. The submarket will benefit in the second half of 2016 and early 2017 when ten-ants occupy the recently completed Solo District and Metro Vancouver moves into Metrotower III and its old head office is redeveloped. Absorp-tion will climb and vacancy will likely tighten. Richmond has benefited from an organic recovery after vacancy hit 24.6% at year-end 2010. Existing ten-ants expanded, benefitting from the lower rents being offered by landlords working to fill their vacant spaces while also attracting new tenants. The arrival of the Canada Line in 2009 sparked demand for office space along No. 3 Road as Richmond rezoned much of the area to encourage mixed-use development. Richmond now has the second lowest office vacancy rate outside the City of Vancouver and its development pipeline is filling.

Two large office buildings were delivered in New Westminster. While the An-vil Centre remains vacant, the Royal City also became home to TransLink and received a new conference centre as well as a rejuvenated core that will support economic activity for years to come. Surrey continued to develop as a key community south of the Fraser River despite its heightened office vacancy rate with new supply being delivered throughout the municipality. The North Shore has the lowest office vacancy outside the City of Vancouver and has seen the rapid redevelopment of its office space inventory as well as new developments set to come online in 2017.

At the end of the second half of 2016, there was just 245,160 sf available for sublease outside Downtown. Downtown sublease space achieved a record low 63,973 sf at mid-year 2016. Sublease availability in Metro Vancouver was 5.9% of total vacancy, the lowest since Avison Young started tracking the market in 1997.

Another 772,690 sf of new office space is scheduled for delivery Downtown by mid-2019 and more than 1.2 msf in the rest of Metro Vancouver by the end of 2018. Hence, in the next 36 months, slightly less than 2 msf is expected to come online. In the past 36 months more than 3.7 msf was delivered. The dynamics of Metro Vancouver’s office market are not the same as in 2013 as millions of square feet of new supply and class AAA and A options throughout the region have been added in the past three years, but further dramatic change is unlikely in the next three years. While the overestimation of future tenant demand and rising land and construction costs remain as risks, the recent and mostly success-ful expansion of the region’s office market marks a distinct departure from previ-ous development cycles. This cycle has laid the groundwork for a more regional approach to office development in Metro Vancouver in the 21st century.

Avison Young #2900-1055 W. Georgia Street Box 11109 Royal Centre Vancouver, BC V6E 3P3, Canada

For more information please contact:

Michael Keenan, Principal & Managing DirectorDirect Line: [email protected]

Andrew Petrozzi, Vice-President, Research (BC)Direct Line: [email protected]

Sherry Quan, Principal & Global Director of Communications & Media RelationsDirect Line: [email protected]

Avison Young Office Leasing TeamNicolas Bilodeau [email protected]

Robin Buntain* [email protected]

Fergus Cameron [email protected]

Matthew Craig* [email protected]

Shaan Desai [email protected]

Bill Elliott [email protected]

Glenn Gardner* [email protected]

Jordan Gill [email protected]

Gina Gu [email protected]

Sean Keenan [email protected]

Derek Lee [email protected]

James Lewis [email protected]

Jason Mah* [email protected]

David MacFayden [email protected]

Justin Omichinski* [email protected]

Brian Pearson [email protected]

Leeanna Petrik [email protected]

Dan Smith [email protected]

Josh Sookero* [email protected]

Terry Thies* [email protected]

Tammy Stephen [email protected]

Matt Walker [email protected]

Ian Whitchelo* [email protected]

*Personal Real Estate Corporation

Metro Vancouver Downtown

Squa

re F

eet

0

100,000

200,000

300,000

400,000

500,000

600,000

2011 2012 2013 2014 2015 Mid-2016

299,773322,884

480,936

234,251190,092

425,921

125,721148,684

240,814 249,851 245,160

63,973

Vacant Sublease Space

office market report - avison young€¦ · office market report mid-year 2016 vacancy remained...

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