With space at an all-time low, rents top $40 per square foot for the first time
Michael Kane
Sun
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 in 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.
© The Vancouver Sun 2007
