Amount of Vancouver office space expected to become dire: Report
Two men leave an office building at 725 Granville Street in Vancouver, August, 14, 2017. (Richard Lam/Postmedia Network)
Unprecedented demand for office space in Vancouver is expected to drive commercial real estate vacancies to the lowest rates ever, a new report says.
The report from professional services firm JLL says a tight Vancouver commercial real estate market will be driven by new demand from technology companies. Vacancy rates could dive from about seven per cent currently to three per cent in 2019, the JLL report says, which would be "the lowest vacancy rate on record."
The report says that the second quarter of 2017 saw Vancouver's downtown office-space vacancy rate drop to 6.8 per cent, down from 8.3 per cent in late 2016.
In an interview Monday, JLL vice-president Mark Chambers said that in 25 years of watching Vancouver's office market he has never seen greater demand from companies to gobble up office space.
"A lot of the companies are from the U.S.," Chambers said. "The low Canadian dollar is attractive, and also we are a market where it is easier to bring in (high-technology) workers from overseas."
While this sounds like a positive economic forecast for Vancouver — a city increasingly banking on drawing high-tech companies — current demand could overwhelm the supply of offices built in downtown Vancouver since 2015, Chambers said. If that's the case, surrounding suburbs with higher vacancy rates and lower rents could benefit.
"A vacancy rate of three per cent would have a profound impact on Vancouver's desire to build itself as a tech hub and financial centre," the JLL report says. "Companies will find it increasingly difficult to expand in a market with little supply, in addition to increased rental rates, as competition increases for quality space. This will likely cause ... a flight to the suburban markets."
In a statement, Kent Munro, Vancouver's assistant director of planning, said the JLL report apparently focuses mostly on demand for premier downtown office space, but Vancouver has been rezoning in other locations to provide commercial space that is attractive to innovation-economy companies.
"The City of Vancouver has been addressing this need from multiple perspectives beyond just facilitating new office development in the downtown," Munro said in a statement. "For example, recent changes in Railtown, the False Creek Flats and in Mount Pleasant have all created expanded opportunities for new employment space."
JLL's report follows a recent report by Cushman and Wakefield, which said by 2019 Vancouver is predicted to have the second-lowest office-vacancy rate in the Western hemisphere. Cushman and Wakefield's prediction for a Vancouver office-vacancy rate of 6.3 per cent in two years, would put the city behind only Toronto, at 3.9 per cent, their report said.
In Vancouver, developers built about 2.3 million square feet of new office space in the downtown market between 2015 and 2017, according to Stuart Barron, the firm’s national director of research.
In a previous story, Barron told Postmedia News that for Vancouver "the strength in the technology sector has been so strong that demand in (some types of) buildings has been more-or-less explosive."
Josh Gotlieb, an associate professor at the Vancouver School of Economics at the University of B.C., told Postmedia that Vancouver maintains a disproportionate amount of single-family zoned property, which drives real estate investment and demand into other property categories.