q4 metro vancouver office market report · that the city of vancouver offers, but budget and cost...
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2 | NAI Commercial Metro Vancouver Office Report | Q4 2019
Vacancy Rate Q3 2019
Vacancy Rate Q4 2019
% Change from Previous
Quarter
Spaces Added
Q3 2019
Spaces Added
Q4 2019
% Change from Previous
Quarter
Total Area Space Added Q3 2019 (SF)
# of Spaces Leased
Q4 2019
# Spaces Leased
Q4 2019
Total Area Space
Leased (SF)
# of Spaces Removed
Q3 2019
# of Spaces Removed
Q4 2019
Total Area Spaces
Removed (SF)
Total # of Spaces
Removed
Total Area Taken Off
Q4 2019 (SF)
Absorption for the
Quarter (SF)
Downtown 3.90% 4.00% 2.56% 130 147 13.08% 492,244 86 Downtown 113 315,160 16 19 84,495 102 399,655 -92,589
Suburban 8.40% 8.60% 2.38% 213 119 -44.13% 790,122 62 Suburban 86 280,715 13 21 129,400 75 410,115 -380,007
Vancouver Periphery 4.30% 4.70% 9.30% 34 45 32.35% 306,385 19 Vancouver
Periphery 24 54,582 5 6 69,168 24 183,982 -122,403
Total -594,999
Statistics provided by Altus Insite
METRO VANCOUVER
The beginning of a new decade is an excellent time to reflect, not only on 2019 but on how our market has changed over the last 10 years. During Q1 2010, the Greater Vancouver vacancy rate overall was 10.0%. In Q4 2015, the rate peaked at 12.0%, and in Q2 2019 it hit a low of 5.5%. We finished Q4 with modest gains to 6.0% overall vacancy.
The last quarter of 2019 proved interesting. Canadians re-elected Justin Trudeau for another term, despite the 2015 electoral promise to balance the budget by 2019/2020. Come election time 2019, it was predicted the deficit (not balanced) will be $19.8 billion. Post-election on December 16th, Finance Minister Bill Morneau provided an update: for the period ending March 2020, the deficit will be closer to $26.8 billion, not balanced. The 2010s were Canada’s worst decade for economic growth since the 1930s. Furthermore, government spending does not seem to be trickling down to BC, as job growth locally was just 0.3%.
On the provincial side, with the start of a new decade companies are now fully saddled with paying the MSP for their employees. As well, the NDP is supporting its backers and steering billions of dollars towards union workers for key infrastructure projects under the new Community Benefits Agreement, which stipulates workers must be unionized. It is also interesting to see the BC Teachers’ Federation, a long-time supporter of the NDP, having to campaign against the NDP to negotiate their contract.
If you had trouble getting a cab during the holiday season, you are right to be disappointed in the provincial government’s delay, and what some feel is the blocking, of ride-sharing. Despite promises that ride-sharing would arrive in 2017, then 2018, and finally 2019, the province has failed to deliver the much-needed ser-vice. Recently, the NDP announced that Green Coast Ventures has been approved for Tofino, Ucluelet and Whistler. This is not ride-sharing, and this is not relevant to British Columbians. An unproven ride-sharing company with no intention to scale will not be effectively able to meet demand; who in the world would look for a Green Coast app? Instead, it would seem better that the government simply allows the widely requested Uber / Lyft combo to serve our market. Uber / Lyft primarily win not on a cost basis, but by reducing the friction of the experience, and a local solution is not the answer. If the province is so challenged in approving ride-sharing, perhaps they could ask Ontario, Sas-
katchewan, Quebec, Manitoba or Alberta how they did it, and how over 600 world-class cities have been able to adopt it. At some point, this simple issue becomes a joke and a reminder of the challenges of accomplishing anything through government channels.
We encourage you, anytime you can’t get a taxi, or are tired of the taxi offering, write to the Premier: [email protected] and the Transportation Minister Claire Trevena: [email protected] and let them know that you would like the option of using Uber and Lyft.
Moving on, Vancouver’s City Council recently approved a 7% property tax increase. We commend all the good services that the City of Vancouver offers, but budget and cost control cannot be handled by a council with limited elected terms. A 7% increase is a good indication that costs are not being properly monitored or controlled within the city. Perhaps it is time that large capital projects be costed and vetted with outside service providers. When it takes years to retrofit the Burrard Street Bridge, you have to wonder and challenge the status quo. It may not be about the items on the budget but value and practicality. Who is challenging costs and expendi-tures to make sure value is being received? Whether it is the seismic work on the Granville Street Bridge or the water main replacement on West Georgia (that will take four months to go four blocks), is the city being a good steward of your tax dollars? We’d like to see the city start serving the interest of the tax payers, get costs under control and look where they can remove and reduce the “nice-to-haves” and put in place policy that provides an incentive to all departments of the city to reduce their expenditures and reward them for efficiencies. We commend the City of Port Coquitlam for limiting their tax increase to 0.48%, and we hope that Vancouver City Council can work diligently and review on a deeper level their budget and work with departments to find greater efficiencies.
So for 2020, we wish you well, we wish for Uber and Lyft to be able to operate in our city, and we look forward to the announcement of lower taxes and less bureaucracy. Lastly, may permits be issued quickly by City Hall and may all of you prosper.
Moving on to the Metro Vancouver Office market.
office market report | quarter four 2019
Q4 2019 | NAI Commercial Metro Vancouver Office Report | 3
Vacancy Rate Q3 2019
Vacancy Rate Q4 2019
% Change from Previous
Quarter
Spaces Added
Q3 2019
Spaces Added
Q4 2019
% Change from Previous
Quarter
Total Area Space Added Q3 2019 (SF)
# of Spaces Leased
Q4 2019
# Spaces Leased
Q4 2019
Total Area Space
Leased (SF)
# of Spaces Removed
Q3 2019
# of Spaces Removed
Q4 2019
Total Area Spaces
Removed (SF)
Total # of Spaces
Removed
Total Area Taken Off
Q4 2019 (SF)
Absorption for the
Quarter (SF)
Downtown 3.90% 4.00% 2.56% 130 147 13.08% 492,244 86 Downtown 113 315,160 16 19 84,495 102 399,655 -92,589
Suburban 8.40% 8.60% 2.38% 213 119 -44.13% 790,122 62 Suburban 86 280,715 13 21 129,400 75 410,115 -380,007
Vancouver Periphery 4.30% 4.70% 9.30% 34 45 32.35% 306,385 19 Vancouver
Periphery 24 54,582 5 6 69,168 24 183,982 -122,403
Total -594,999
Statistics provided by Altus Insite
DOWNTOWNsnapshot
Office ClassAvailability Rate
Q3 2019Availability Rate
Q4 2019Inventory Size
(SF) Q3 2019Inventory Size
(SF) Q4 2019
A 3.3% 3.3% 15,644,316 15,659,462
B 2.6% 3.0% 6,866,149 6,866,149
C 8.9% 9.3% 3,545,070 3,519,413
In Q4, the downtown market saw a slight uptick in vacancy, increasing to 4.0% from 3.9% (Q3) and 3.8% (Q4 2018). New spaces added to the market were up 17 to 147 in the quarter, bringing 492,244 SF to the market, while 86 spaces leased, and 19 spaces removed, resulting in a slight negative absorption of 92,589 SF. The vacancy rate in Q1 2010 was 6.8% on an inventory of 23,785,847 SF. We finished the decade at 4.0% vacancy with an inventory of 26,045,024 SF. Within the decade, vacancy peaked in Q4 2015 at 11.1% and occupied space increased by 2,259,177 SF, which equals a growth rate of 12.7%.
Market Average Size of Space Added in
Q4 2019 (SF)
Average Size of Space Leased in
Q4 2019 (SF)
Average Size of Space Removed in
Q4 2019 (SF)
Downtown 3,349 2,789 4,447
Suburban 6,640 3,285 6,162
Vancouver Periphery
6,963 2,274 11,528
Below is a graph tracking Greater Vancouver vacancy rates by quarter over the decade, laid over the occupied space per quarter for the same period.
LEASED REMOVEDADDED ABSORPTION
-400,000
-200,000
0
200,000
400,000
600,000
800,000
Downtown Suburban VancouverPeriphery
Q4 2019 Absorption
Vacancy Rates by Quarter vs. Occupied Space by Quarter Greater Vancouver (2010–2020)
Occupied Space (SF) Vacancy RateInventory Size (SF)
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
46,000,000
48,000,000
50,000,000
52,000,000
54,000,000
56,000,000
58,000,000
60,000,000
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
Q1
2019
Q2
2019
Q3
2019
Q4
2019
4 | NAI Commercial Metro Vancouver Office Report | Q4 2019
Significant Transactions ` PI Financial Corporation made a commitment to relocate to 753 Seymour St, Vancouver Centre II for about 45,000 SF, joining B2Gold who committed there as well for 37,000 SF
` Collliers is rumoured to have committed to 41,000 SF at 1090 West Pender St
` Charest Reporting will relocate to 28,000 SF within 885 West Georgia St
` Procurify expanded to 22,000 SF at 717 West Pender St
` Vancouver Fraser Port Authority leased the 25th floor of 1066 West Hastings St
` D22 leased the 19th floor of 355 Burrard St
` Hudson Pacific leased 72,000 SF to a technology company in Bentall IV and secured Epic Games in 505 Burrard St for 7,500 SF
Speaking of Hudson Pacific, we’ve noticed more activity at Bentall, where the complex has a sense of a new beginning. If you have not looked up, check out the new signage on top of Bentall IV. “Hudson Pacific Properties” is making their mark on the skyline, and it does not stop there. The landscaping in front of Bentall II is being replaced, crown LED’s are being installed, and rumours of more repositioning plans for the retail and common areas are to follow. It is great to see the iconic complex getting new energy and innovation.
Despite the leasing activity, it is still a challenge for your typical tenant to find quality space at a reasonable cost. Most tenants renewing or relocating face an increase in their taxes and operating costs, as well as their basic rent. These escalations are seeing rents increase for many in the 30%–70% range depending on when they executed their previous lease, and that is forcing many business to consider their options and how to be more efficient in their premises, and if in fact they need their premises.
An interesting note: the downtown core inventory size is currently 26,045,024 SF, and Amazon is slated to occupy 14,000,000 SF in Seattle. That would represent nearly 54% of Vancouver’s total inventory! With Amazon bailing on its HQ2 plans in NYC, many believe they have turned to Vancouver as an unofficial HQ2. With their commitment to both properties at the Post building representing over a million square feet, their existing offices will be poised to be the largest single tenant in our market. How much larger will Amazon get in Vancouver?
Growth in Occupied Space Metro Vancouver (2010–2020)
Market 10-Year
Inventory Growth (SF)
% of Inventory
Growth
Growth In Occupied
Space (SF)
% of Increase in Occupied
Space
Inventory Size (SF)
Occupied Space (SF)
% of Occupied
Space
Downtown 2,259,177 27.76% 2,834,814 29.10% 26,045,024 25,003,223 44.46%
Suburban 3,493,167 42.93% 4,464,530 45.83% 24,005,676 21,941,188 39.01%
Vancouver Periphery
2,384,582 29.31% 2,442,060 25.07% 9,756,451 9,297,898 16.53%
Total 8,136,926 100.00% 9,741,403 100.00% 59,807,151 56,242,309 100.00%
Statistics provided by Altus Insite
DOWNTOWN VACANCY RATESQuarterly: 2.56%Q3 2019: 3.90% | Q4 2019: 4.00%Yearly: 5.26%Q4 2018: 3.80% | Q4 2019: 4.00%
SUBURBAN VACANCY RATESQuarterly: 2.38%Q3 2019: 8.40% | Q4 2019: 8.60%Yearly: 11.69%Q4 2018: 7.70% | Q4 2019: 8.60%
PERIPHERY VACANCY RATESQuarterly: 9.30%Q3 2019: 4.30% | Q4 2019: 4.70%Yearly: 95.83%Q4 2018: 2.40% | Q4 2019: 4.70%
Q4 2019 | NAI Commercial Metro Vancouver Office Report | 5
SUBURBANsnapshot
Over in the suburban market, the vacancy rate increased slightly to 8.6% up from 8.4% in Q3. The suburban market started the decade with a vacancy rate of 14.8% and an inventory of 20,512,509 SF and finished with an inventory of 24,005,676 SF. Growth in occupied space over the decade was 4,464,530 SF for a total of 21,941,188 SF occupied space, an increase of 25.5% in 10 years. The vacancy peaked in Q3 of 2011 at 15.8%.
Area# of
Buildings Inventory Size (SF)
Total Availability
Rate
Burnaby 119 9,944,939 6.90%
Langley 5 198,271 10.40%
New Westminster
23 1,438,584 6.90%
North Shore 47 2,225,058 4.60%
Richmond 74 4,417,840 13.70%
Surrey 65 4,054,560 12.30%
Tri-Cities 11 559,052 1.40%
Only 113 spaces were added to inventory in Q4, total-ling 790,122 SF, and 86 spaces totalling 280,715 SF leased and 129,400 SF removed. The net neg-ative absorption for the quarter was 380,000 SF, so we predict there will be an increase again in the vacancy for Q1 of 2020.
The most significant growth in occupied space over the decade took place in the suburban market, with an increase of 46.6%.
Office Class
# of Buildings
Inventory Size (SF)
Total Availability
Rate
All Classes 368 24,005,676 8.10%
A 175 15,126,469 9.60%
B 140 7,023,618 5.90%
C 53 1,855,589 5.00%
As to market activity there were a couple of transactions to report but overall activity was with smaller tenants.
Significant Transactions ` Worley Parsons leased 29,190 SF at 4321 Still Creek Dr, where Huawei also leased 15,000 SF
` Rise People leased 25,000 SF at 3777 Kingsway
` Translink committed to 22,000 SF at 4555 Kingsway
The vacancy rate in the periphery market increased slightly to 4.7% from a Q3 vacancy of 4.3%. However, 45 spaces were added to the inventory totalling 306,385 SF and 24 spaces leased and six spaces removed totalling 123,750 SF, leading to negative absorption of 182,635 SF. Reviewing the decade once again, in Q1 of 2010 the vacancy rate was 7.0% with an inventory of 7,371,869 SF and we finish the decade with a vacancy of 4.7% and an inventory of 9,756,451 SF, growth of 2,384,582 SF in inventory and 2,272,507 SF in occupied space, a growth of 32% over the decade. The decade’s peak in vacancy was Q4 of 2016 at 10.4%, all in all showing a steady growth in the market that is very efficient.
The periphery market activity was made up mostly of renewals, and this is due in part to a lack of quality premises available for lease and a low vacancy rate.
Significant Transactions ` Lasalle College renewed for 82,000 SF at 2665 Renfrew St
` The Vancouver Police renewed 74,000 SF at 2120 Cambie St
Office Class
# of Buildings
Inventory Size (SF)
Total Availability
Rate
All Classes 171 9,756,451 4.60%
A 70 5,623,511 1.60%
B 56 2,489,219 6.40%
C 45 1,643,721 13.00%
It may be time to pay more attention to developing offices in the periphery, especially with the coming Millenium Line Broadway Extension Project.
NAI COMMERCIALoffice team
NAI Commercial appreciates those landlords who have asked us to review and assist with their leasing program. For tenants who have engaged us to help with their office renewals and relocations, we remind you that we remain an interested party. We are available to answer questions and concerns, even after your lease is signed.
We continue to appreciate the reminders and suggestions of agents to join our team. We have openings in both our Van-couver and Langley office and we welcome the referrals of agents looking to enhance their career in commercial real estate that may be a good fit for our firm.
VANCOUVER PERIPHERYsnapshot
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No warranty or representation, express or implied, is made as to the accuracy of the information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions, prior sale, lease or financing, or withdrawal without notice, and of any special listing conditions imposed by our principals no warranties or representations are made as to the condition of the property or any hazards contained therein are any to be implied.
NAI Commercial | 1075 W Georgia St, Suite 1300, Vancouver, BC V6E 3C9 | naibc.ca
Vancouver Office:
Rob DesBrisay Managing Partner 604 691 6602 [email protected]
� Brian Mackenzie � Cole Maedel � Conor Finucane � Edward Sim � Irene Yung � Jesse Godin � Ruby Wang
Langley Office: � Angie MacDonald � Don MacDonald � Gary Niesner � Ken Kiers � Ted Weibelzahl
WEWORKWorries or Winning?We have recently been awed by Amazon and WeWork’s commitment to premises in our market. Since our Q3 report on WeWork’s woes, they have been correcting their model to be able to effectively operate in the real world. Leading up to their proposed IPO, WeWork faced massive public backlash over their unsustainable business model. With significant long-term lease commitments, large losses on high-end buildouts, and questionable corporate practices (including CEO Adam Neumann leasing space to WeWork in buildings he had personal ownership interest in), it was understandable that the IPO was cancelled.
Our take is that WeWork will take one to two years to restructure and operate profitably at a valuation in the low billions. For example, IWG (Regus) is a com-parable company to WeWork, with $4 billion in revenue and $4.41 billion market cap. Softbank has deep pockets and has already begun stabilizing WeWork by laying off 20% of the global work force and slowing down new lease signings. One reservation is that WeWork has basically been built since 2008, rising steadily on increasing rents and business confidence. With a recession, will WeWork’s model be sustainable? In 2019, they reported that 40% of their leases were longer-term commitments with large clients. Anecdotally, we know that Amazon heavily leaned on WeWork during their transition period as they waited for their new office spaces to come online, but what happens longer term or in a downturn?
During WeWork’s positive run, they secured space in iconic buildings in major cities and developed productive relationships with some of the world’s biggest landlords. We see WeWork continuing to succeed as a co-working option spe-cifically for large tech-oriented companies as they transition and land in a new city. In a city like Vancouver, which is still missing major corporate offices for large tech companies (ie. LinkedIn, Google, Intel, Oracle, etc.) and which brings new inventory online at a reasonable pace, we see WeWork remaining effective through a downturn. Particularly in Vancouver, we see an employment environment with lower than average wages, the benefit of a favourable Canadian dollar, and pre-dict that tech companies will continue to place a portion of their operations here.
Edward Sim Commercial Sales & Leasing 604 691 6613 [email protected]
By Edward Sim, NAI Commercial