Colliers released its Q4 2008 report on the Greater Vancouver office market in mid-Decemer 2008.    The overall vacancy rate shot up to 4.6%, a significant rise in these tough economic times.  Rates continue to remain stable, but with low confidence in the economy, many landlords are beginning to hesitate to try to hold out for higher rents, especially in cases of renewals or expansions.  There has been a significant rise in available sublease space, specifically in the Downtown Core.  As of mid-December, there was nearly 850,000 sf available for sublease, double the amount of sublease space available 12 months ago.  Of the 850,000 sf available for sublease, over 60% of that space is located in the Downtown market.

• Bentall Centre
• City pushes for more Office

Taller, denser, more economical

Microsoft needed some 180,000 square feet for its new British Columbia facility, but it needed occupancy in two years. Vancouver could offer a three-year rezoning process and then two additional years for development and other permits. Microsoft chose a Richmond office park, increasing sprawl development, but available in two years.

If Vancouver indeed wants to be a healthy headquarter locale, these excessive delays will have to be eliminated.

So will the current property tax disadvantage that offices confront. Prime downtown condominiums are priced at up to $2,000 per square foot with prime AAA downtown office space worth perhaps 25 per cent of this. However, property taxes are roughly five times as much. Reducing this enormous differential would help make the economics of office space considerably more attractive. Considering a property tax holiday for unoccupied space (for the empty building space only, not for the underlying land) would also help. Reducing the huge tax differential would also reduce occupancy costs to Vancouver's typical small offices and potentially increase the demand for office space in the process.

Since the greatest disincentives to downtown office development are related to policy and process, fixing them can and should be reasonably easy.

Specifically, the planning process could offer fast and preferential approvals to Vancouver downtown office development. Densities are absurdly low, with floor space ratios (densities) at a roughly seven, compared with Calgary's FSRs in the 15-20 range downtown.

Building heights need to be raised considerably to facilitate higher densities. Instead of 400-foot limits, buildings of 600 to 700 feet should be commonplace, not exceptional, in our land-scarce downtown peninsula. (Calgary has no height limit in the downtown core.)

To accommodate higher, denser and thus more economical office buildings, the city must dramatically revise or eliminate the constraining view corridors that have shackled the development of tall and large office buildings in the core.

An easy and highly economical way to accommodate such buildings is to link them directly to existing and planned SkyTrain stations in the downtown peninsula, but also at such well-served locales as Broadway and Commercial, Broadway and Nanaimo and Broadway and Granville (in future) on the Millennium Expo lines and at Cambie and Broadway and Oakridge on the soon-to-be finished Canada Line. Failure to exploit this vastly improved accessibility wastes the opportunities for higher density and lower auto use provided by costly transit investments.

Finally, the downtown office development process must be crafted on a solid understanding of the needs of the small-office-plate market where developers need help to reduce risks and improve profitability to make new downtown office construction attractive to developers and tenants alike.    - 2008 February 6    VANCOUVER SUN   

Downtown Vancouver vacancy rate now 2%    (1Q2008)

• For the first time in over 25 years, the Downtown Vancouver vacancy rate hit a near-record low, at 2.0% this quarter. The last time the vacancy rate reached these depths was mid-year 1981 at 1.8%, when net rates for prime space in the Downtown Core were an average of $19.00 per square foot. Unlike 1981, no significant new supply is being added to the Downtown Core in the near future, whereas from 1981 to 1984, over 3 million square feet of new office space was added, causing the vacancy rate to rise as the space remained mostly unoccupied due to the economic downturn.
• As the vacancy rate continually lowers, net rental rates continue to rise correspondingly. The Downtown Core has already surpassed the $50.00 net rental rate threshold (for prime Class AAA space), and the Suburbs are seeing increases at a faster pace as well. As operating costs and net rental rates are substantially lower in the Suburbs, several companies are continuing to consider the Suburbs, as gross rental costs may be half when compared to a downtown location.   >> MORE

Condos, costs squeeze Vancouver office space
Despite lofty rents and little vacancy, there's little commercial development taking place: 'It takes a lot of nerve to build today'

The numbers, at first glance, couldn't look better for a commercial real estate developer.

On the small peninsula that constitutes downtown Vancouver, there's barely any available office space. The 2.6-per-cent vacancy rate ranks as the lowest of any city core in North America. And rents are soaring, with the cost of prime office space jumping 25 per cent in just one year to more than $34 per square foot.

Yet hardly any new commercial space is being built. Just 130,000 square feet is under construction in downtown Vancouver, which would add less than 1 per cent to what exists. It's a fraction of what's happening elsewhere: Calgary's downtown is expanding by 5.6 million square feet, or 17 per cent, and Toronto is growing by 3.8 million square feet, or 5 per cent.

Construction costs have risen far faster than rents, driven by a Western Canadian construction boom that has made labour scarce and expensive, and the climbing cost of materials such as steel.

Vancouver developers say they just can't make the numbers add up for new projects. In Calgary, for example, the energy boom allows developers to charge $45 a square foot, a third more than they can get in the Vancouver market.

"It takes a lot of nerve to build today," said Don Vassos, a senior vice-president at real estate services firm CB Richard Ellis Ltd. who opened the company's Vancouver office 24 years ago.

Since then, the downtown has gone through a transformation that helped produce the current shortage of commercial space. It's a trend the city now hopes to reverse.

In the 1980s and 1990s, planners and politicians set about creating the Vancouver that currently exists, one consistently on best-places-to-live lists. Under the rubric of "living first," the city heavily promoted residential development downtown, pushing the population on the peninsula to 90,000, more than double the 40,000 or so in the mid-1980s.

But the dozens of residential condominiums have begun to squeeze the commercial core. Four years ago, alarm bells started going off for planners when Duke Energy sold the landmark Westcoast Transmission building for a condo conversion. That provoked the city to impose a temporary halt on such changes in the central business district.

With developers predicting that Vancouver will run out of space to build new commercial buildings in the next 20 years, city council is poised to encourage construction of more office space. In July, it will consider a series of proposals from planners that include an expanded central business district, tighter rules on condo conversions and proposals to allow taller towers with more density.

Until things change, however, businesses will continue to feel the squeeze.

Part of the problem, developers say, is that condos are far more profitable than commercial space because residential buyers are willing to pay large premiums for benefits such as views of the ocean and mountains.

And unlike Calgary and Toronto, where large corporations drive demand for many storeys of commercial space, the typical Vancouver tenant is more likely to be a law firm or upstart technology company requiring far less space. Developers have to sign on many more tenants to make a project work instead of landing one big name.

Some Vancouver developers say the city has to take measures to encourage new commercial buildings that go beyond the proposals city planners have put together.

"They need to address costs," said Tony Astles, executive vice-president for B.C. at Bentall Real Estate. "And they need to address the length of time it takes to go through the whole process, from zoning to approvals.

"It's a clogged-up system. Right now, it's very difficult to rationalize a high-rise office tower in downtown Vancouver. The costs of construction have risen so fast that rents - even though they're at their all-time high - haven't kept up."

***

Disappearing downtown

Vancouver city council pursued a strategy of "living first" for its downtown in the 1990s, nearly doubling the number of people residing in the core and creating a city that is lively by day and night. But the commercial core is now at an extreme premium, squeezed by condos - and city planners are drafting new rules to ensure there's room for office space.

Core office space is at record premium

Vancouver's downtown office vacancy rate shrunk to a new low of three per cent, inching past Calgary as the tightest central office market in the country, according to commercial realtor CB Richard Ellis.

Only 645,008 square feet of Vancouver's 21.6 million square feet of offices downtown sit vacant, according to CB Richard Ellis' third-quarter report.

CB Richard Ellis analyst Chris Clibbon added that downtown's vacancy "is probably one of the lowest in North America," when it comes to downtown office availability.

Clibbon added that the opening of the 11-storey, 238,000-square-foot expansion of the Bentall Five building on Burrard Street will create some flex in the market.

"There are tenants giving back some large chunks of space," he said.

"Some will be moving into Bentall Five . . . and there will be some tenant shifts creating some options here and there, but nothing substantial."

Jeffrey Rank, managing director of commercial realtor Cushman & Wakefield LePage, said the subleasing market has provided some relief for the downtown market, providing room for tenants as companies change locations.

Catalyst Paper Corp.'s planned move from the PricewaterhouseCoopers building at 250 Howe St. to a suburban headquarters that will empty three floors in the downtown building is one example of office space opening up.

However, that space in the PricewaterhouseCoopers building was almost immediately leased by existing tenants in the building.

"In some markets, one of which I think we're in right now, looking at purely the percentage numbers doesn't always tell you the whole story," Rank said.

"Still, we're in a tight market. There's no question [about that]."

Cushman & Wakefield's assessment of downtown's vacancy is slightly higher than its competitor at 3.9 per cent.

Clibbon said Catalyst's decision to move out of downtown is indicative of another trend market analysts expect to see as vacancy remains tight.

Suburban office vacancy, according to CB Richard Ellis, was 10.9 per cent across all markets, although the total office space in the remainder of Metro Vancouver is only 17.3 million square feet. By community, vacancy ranged from 8.1 per cent in Burnaby to 22.4 per cent in Surrey.

Meanwhile, half of all new office buildings -- some five-million square feet -- being built in Canada are going up in Calgary, which will dramatically change its vacancy picture. That city's vacancy rate crept up to 3.1 per cent in the third quarter compared with 2.8 per cent in the second quarter.

Nationally, the vacancy rate for Class A space in the third quarter dipped to an "extremely low" 4.7 per cent, with rents climbing to an average $21.99 per square foot compared with $20.84 a quarter ago, according to CB Richard Ellis.

Montreal was the only market with falling prices. Asking rents dropped to $18.09 per square foot per year from $18.83.

"Even with the addition of a sizable amount of new Class A office space, the Calgary market will still be relatively tight market for some tenants because much of the new space coming to the market has already been leased," said CB Richard Ellis president Blake Hutcheson. - by Derrick Penner    VANCOUVER SUN    2007 September 19

Office vacancy rates, 2007 Q3
Broadway corridor: 2.6%
Downtown Vancouver: 3.0%
North Shore: 5.0%
Burnaby: 8.1%
Richmond: 13.7%
New Westminster: 20.0%
Surrey: 22.4%
Total: 6.4%
Source: CB Richard Ellis

Office space rents soaring in Vancouver
With space at an all-time low, rents top $40 per square foot for the first time

Available Vancouver office space is at an all-time low, forcing rents for top-of-the-line properties above $40 per sq. ft. for the first time.

The downtown vacancy rate dropped to 3.5 per cent in the second quarter, according to CB Richard Ellis, a major commercial realtor. The last time it was close to that level was at the height of the tech boom in late 2000, when it bottomed out at 3.9 per cent.

Space is even tighter along the Broadway corridor, where vacancies have fallen to a record low of 2.6 per cent.

Shrinking supply and steady demand have pushed up downtown rents for Class-A buildings by 17 per cent during the past 12 months, and nearly 30 per cent over the past two years.

While the average net rent downtown is $20 per square foot, according to CBRE survey results released Thursday, the average is $31.77 for AAA-Class buildings like the Bentall 5 tower on Burrard St. or the Terasen building on West Georgia.

"There are deals now being done in the mid-$40s for the elite, high-view spaces, and that's a first for this market," CBRE analyst Chris Clibbon said in an interview. "Two years ago that same class of space was averaging $25.20, and there were no deals being done over $30 at that time."

Rising rents are encouraging cost-cutting companies like Catalyst Paper to move to cheaper suburban office markets, which also experienced a strong second quarter. Catalyst is relocating its head office from a triple-A building on Howe St. to Lysander Lane Richmond.

"This is a trend we expect to grow as rental rates continue to increase in the downtown market," Clibbon said. " Burnaby and Richmond are poised to do well, particularly Burnaby because of the SkyTrain. Both markets will grab some tenants from downtown."

There are currently three office developments under construction near SkyTrain stations in Burnaby, while Richmond has two developments under way. Vacancy rates decreased in all suburban markets in the second quarter, with the exception of Surrey, CBRE said.

Clibbon expects the downtown vacancy rate to remain tight for the rest of the year. While the second phase of Bentall 5 is nearing completion, the project is fully leased, and there are no other office projects announced to date that are expected to be complete before 2010.

Lack of new supply is the most notable feature of the current downtown market.

"In every office cycle where we have seen vacancy rates drop to new levels, we have always had this bank of new supply that would counter the vacancy drop. We just don't have it in this cycle, not yet."

However, there are hints that developers are poised to submit applications to the city for potential new towers.

"There is a little bit of a race right now to put a tower up," Clibbon said. "Rates are now approaching the level required to build an exclusive office tower and make a profit."

Meanwhile, the City of Vancouver has managed to stall further conversions of office buildings into condo towers, and forced two condo projects in the core -- the Hotel Georgia and the Bay Parkade -- to include a small proportion of office space, about 80,000 sq. ft. each. But neither project is due to be complete before the Winter Olympics. - 2007  June 15  by Michael Kane Vancouver Sun  

New office tower to adjoin GM Place
EDITORS NOTE: This project is not proceeding

GM Place owners plan to build a 22-storey office tower that will connect to the arena's northwest corner, Vancouver Arena Limited Partnership announced Friday.

A formal application has been submitted to the City of Vancouver for permission to build a 312,000-square-foot building designed by architect Peter Busby.

Busby said the building will become a signature Vancouver office tower because of its design and plans to make it among the most energy-efficient commercial buildings in North America.

Sustainable features will include using "energy synergies" between GM Place and the connecting office tower. Heating and cooling systems between the two buildings will work together so waste heat from one building will be used to heat the other.

Part of GM Place's underground parking, which is used mostly at night, will be used for the new office tower.

Vancouver Canucks chief executive officer Chris Zimmerman, who was uncertain about the project's cost and potential opening date, said the new building will enhance the fan experience by providing new amenities like restaurants and retail shops.

He noted office tower tenants will be able to walk from their lobby straight onto the concourse level of GM Place for hockey games or concerts.

"We always want to have more concourse space because it gives us the opportunity to create more food and beverage options," Zimmerman said in an interview. "It will allow for better flow throughout the arena."

He expects the new tower will attract a lot of potential new tenants who will enjoy the unique opportunity to be directly linked with an NHL venue.

"In a highly competitive job market, I think it gives the primary tenants some wonderful recruiting tools," Zimmerman said. "We'll be able to provide some unique benefits around utilization of the building, the ice surface and probably some inside access to certain team events. It will be a great way for companies to differentiate themselves."

He said the current high demand for Vancouver office space makes it an ideal time to build the new tower. The downtown Vancouver office space vacancy rate is currently at an all-time low of 3.5 per cent, according to CB Richard Ellis Ltd.   -  Bruce Constantineau, Vancouver Sun   2007 August 18

Highlights of the Fourth Quarter 2006
Greater Vancouver Office Market Update include:

VANCOUVER'S OFFICE SQUEEZE:
Large companies are having trouble finding office space in downtown Vancouver.    Look at where Downtown Vancouver's rate is and you'll see why so many large companies are looking to the suburbs.

GREATER VANCOUVER OFFICE LEASING VACANCY RATES, Q4 2005

• Broadway Corridor 5.8%
• Downtown Vancouver 7.8%
• North Shore 12.7%
• Burnaby 14.7%
• Richmond 17%
• New Westminster 20.7%
• Surrey 23.5%
• GVRD average 10.8%

Source: CB Richard Ellis

Downtown office vacancy rate drops

Businesses are having more and more trouble finding good office space in downtown Vancouver and it's not going to get any easier as the number of wannabe tenants grows and the number of buildings doesn't.

The office vacancy rate for downtown Vancouver fell to 7.8 per cent in the fourth quarter of 2005, the lowest it's been in almost four years, a report released Tuesday by CB Richard Ellis said.

The vacancy rate is even lower -- 6.3 per cent -- for top quality, or AAA, buildings.

A 10-per-cent vacancy rate is the equilibrium level for the market, CB Richard Ellis' senior research analyst Chris Clibbon said in an interview.

When the vacancy rate gets any lower the landlord controls the market, which usually means higher rents. Rents in AAA buildings have gone up 25 per cent in the last 12 to 18 months, Clibbon said, with some office towers charging $35 to $40 per square foot.

And with no new office buildings on the horizon, there is no end in sight.

"Historically in this market there has always been new supply which has countered the vacancy trend," Clibbon said.

"Vacancies drop, someone goes ahead and builds a tower [and] vacancy goes up. It's a cycle that repeats itself. This is the first time we've seen it where we don't know where the inventory is going to come from downtown."

It takes about three to four years from start to finish to build an office tower, Clibbon said.

"[So] we need to get something started right now."

But there is nowhere to build.

"There are almost no opportunities for an office developer to build downtown," Clibbon said. "The whole condominium craze has absorbed a lot of prime sites."

As a result some potential tenants have had to look elsewhere. The Vancouver Olympic Committee was looking to expand its 20,000 sq. ft. in the downtown core to 220,000 sq. ft. of space by 2009. But to do that, it had to move away from downtown to near the Burnaby border, Clibbon said.

Richmond-based Transoft Solutions Inc. was hoping to find office space in downtown Vancouver to be closer to home for its largely young workforce that tended to live in areas like Kitsilano, the company's CEO Milton Carrasco said. The company needed 15,000 sq. ft. to amalgamate its offices and allow for the rapid growth it was anticipating in the future. But that turned out to be impossible. The only space available was on separate floors or otherwise divided up and that wasn't acceptable, Carrasco said. In the end, the company rented new space in Richmond.

That's not surprising, Clibbon said.

"Large blocks of contiguous space are extremely rare, especially in the AAA buildings," he said.

Cushman & Wakefield LePage Inc. also released its numbers Tuesday on fourth quarter vacancy rates. Cushman's numbers show an even tighter market, with the vacancy rate in downtown Vancouver being 6.9 per cent. Unlike CBRE, Cushman includes government buildings, which are traditionally 100-per-cent occupied, leading to lower numbers.

Bart Corbett, Cushman's vice-president, office leasing division, agreed with Clibbon.

"What is most concerning as a representative of tenants in the downtown core is not only the short-term lack of supply but the long-term prospects for the delivery of new inventory," Corbett said in a statement.

"Beyond Bentall V (90 per cent preleased and also to complete in 2007), there is no commitment or new sites proposed by developers that could deliver a major new office complex in the downtown core prior to 2010."

Both studies show the tightest market in the Greater Vancouver area to be the "Broadway corridor," the area on Broadway between Granville and Cambie. - by Fiona Anderson     VANCOUVER SUN     21 Dec 2005 

As vacancy rates drop, market shifting in favour of landlords

The easy ride for downtown office renters, especially big space users, is over in Vancouver, Cushman & Wakefield LePage says in its latest office vacancy survey.

"Strong leasing activity in downtown Vancouver and its neighbouring communities, the Broadway corridor, Burnaby and the North Shore are starting to shift the market in favour of landlords," the survey said.

Hendrik Zessel, vice-president of the company's Vancouver office, says Vancouver and Calgary now have the lowest vacancy rate in the country.

"In B.C., the activity is driven by its strong economy, plus there are no new office developments coming into the downtown core until 2007," he said.

The overall vacancy rates for Greater Vancouver now stands at 8.4 per cent, a four-per-cent improvement from a year ago.

The downtown Vancouver rate has fallen by one per cent from a year ago to 6.9 per cent, with the Broadway corridor enjoying the lowest vacancy rate at 4.6 per cent.

The residential real-estate market is also showing no signs of weakness.

According to the B.C. Real Estate Association, 7,720 homes, worth more than $2.66 billion, were sold in the province on the Multiple Listing Service last month, a 34.18-per-cent increase in dollar volume and a 15.14-per-cent hike in the number of units sold during the same month last year.

"Typically, this time of year tends to be somewhat slower for real-estate sales," said BCREA President Dave Barclay.

"However, the numbers continue to show very strong market activity as we approach the end of the year."

So far this year 100,586 sales have been made, eclipsing last year's record of 96,314. -   by Ashley Ford   THE PROVINCE    21 Dec 2005

Copyright ©  2008
By opening this page you accept our Privacy and Terms & Conditions