Recently, The Vancouver Sun reported that Vancouver’s office market is experiencing the highest vacancy levels in over a decade. Now at just over 10%, this number is expected to reach up to 12% by the end of the year as newly built office towers start opening their doors to tenants. With a substantial amount of new space in a relatively short time, the demand simply can’t keep up with the supply – a rare concept compared to other sectors of our city’s real estate market.
The cause of this sudden surge is due to a few factors at play. According to Cushman & Wakefield, global economic uncertainty is said to be one of the main causes, as turmoil in Chinese financial markets have caused some companies to move out of their office spaces altogether. The mining industry, which is closely tied to demand for Chinese commodities, has also taken a hit, causing layoffs and downsizing of the workplace.
The influx of new construction further adds to this issue. Along with new buildings open for lease, there are several more in the proposal stages. The Wall Street Journal reported “in this year’s second quarter alone, four new office towers were completed [in Vancouver], totaling nearly 1.3 million square feet”. In addition, another 3 million square feet of office projects are in the development pipeline, representing a potential 13% expansion of stock.
The Telus Garden Building offers more than one million square feet of office and residential space
Despite reports that these are risky times for developers seeking the downtown office market, Avison Young says this is far from a crisis. Brian Pearson, a principal and office-leasing specialist, feels that the current 10% vacancy rate makes for a fairly balanced market, noting that the 10-12% vacancy rate is “healthy”. Furthermore, these vacancies give decent lease rates to landlords while also offering the tenants flexibility to move or expand.
While industries like mining and commodities are flailing, others are thriving. Most notably, the tech industry. Amazon, Microsoft, and Sony are just some of the tech giants who are calling Vancouver home, and consequently need substantial office space to support their workforce. In 2014, IT companies made up 19% of all leasing activity across North America, a considerable jump from 14% just a year earlier.
Whether or not the effects of the global economy will continue to affect Vancouver’s office vacancies remains to be seen. However, it’s clear that the tech industry is helping keep many leasing agents afloat.