Landlords in driver’s seat
Ashley Ford
Province
Vancouver’s Bentall V office tower is already fully leased. Photograph by : Arlen Redekop, The Province
Vancouver’s office-space crunch is on with a vengeance downtown and fleeing to the inner suburbs offers little relief for potential tenants, says the latest office-market report from Colliers International. Paced by a vibrant economy and competitive housing projects for rapidly diminishing downtown land, the downtown vacancy rate is at 3.1 per cent — down from 5.4 per a year ago.
“This is one of the tightest markets we have seen since 1980,” said Shawna Rogowski, director of research at Colliers.
“In that year, the rate reached just 1.5 per cent. In 1981 it was 1.8 per cent and the next year it rose to 9.4 per cent. It doesn’t appear that will happen anytime soon.
“This current cycle started in 2004 and shows no sign of relief. Investors are still attracted to the city and it remains a very popular place to do business,” she said.
While there are plans for new space, the only new triple AAA space coming on stream this year is the expansion of Bentall V on Burrard Street. But the additional 75,000 square feet will have no impact as it is already leased.
There are rising concerns about where future office space will come from and the city’s jobs-and-land-use plan says the downtown will need about 65 million square feet of space to accommodate job growth over the next two decades. It could run out of office space within five years under current zoning regulations.
That is about 10 million more square feet than is currently permitted under existing land-use regulations.
A Vancouver moratorium on new housing near the business district has been in place since 2004, but hasn’t helped much except to curb residential demands, Rogowski said.
Colliers bluntly says there is “no relief with the addition of new supply in the near future.”
The immediate result is landlords have the upper hand and tenants are staring at new record net rate leasing rates approaching $40 a square foot. “Landlords have the upper hand,” the report says.
“They are able to ask for higher rates from tenants who would like to renew. With the lack of supply, tenants are challenged to find new space, especially at far lower costs that would justify moving to a new location . . . any developer who can have an office building complete and ready to be occupied before 2010 is at a major advantage.”
Moving to the suburbs and cheaper space is also fast becoming an illusion. Burnaby, Surrey, Richmond and Vancouver’s Broadway are all doing well and rates are starting to rise in all these locations. Class-A vacancy rates along Broadway stood at 2.1 per cent at the end of the first quarter, 2.3 per cent in Burnaby and a seemingly robust 22.3 per cent in Surrey.
But that is primarily due to the entire vacancy of nearly 260,000 square feet at Surrey’s 104 Avenue Centre. Take that out and the rate would tumble to just 4.4 per cent, the report said.
