Metro Vancouver Office Report Third Quarter 2010
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Metro Vancouver Office Report Third Quarter 2010 Economic Overview Canada’s economy held strong in the 3rd quarter despite a chaotic currency market and failing US economy. Employment continued upward, and while the GDP fell slightly, current investment and employment trends indicate a strong resurgence going into the 4th quarter. Due to this slow down, the Bank of Canada held the overnight at at 1% and downgraded its estimates for growth. While the banks and investors are cautious, they have continued to keep options for investment financing open which has contributed to this quarters increased investment in construction. Metro Vancouver Market Summary With a drop off in new supply, the vacancy of the Metro Vancouver area decreased 60 base points to 9.0%. All submarkets, with the exception of the Broadway corridor, saw a drop in vacancy in the 3rd quarter. Due to historically low vacancy rates, this drop has not had an effect on current lease rates, but may in the coming months. As the economy continues to recover and more jobs are added, we will continue to see this dropping vacancy. Expect to see rising rates, particularly in the downtown core, going toward the end of the year. The Vancouver area, like much of Canada, has recently seen renewed interest in new construction. Investment in nonresidential building construction rose to 6.4% from last quarter, and is expected to continue increasing into next year.
on projects close to major transportation hubs that have a large volume of smaller, more expensive space. Downtown Office As employment increased, the downtown office market saw a small amount of absorption and a drop in the vacancy rates. While the Downtown core has seen stable rates, this increased market activity may result in slightly elevated lease rates. The core vacancy currently sits at 5.1%, down 50 basis points from 5.6% last quarter. Notable lease deals: • AMC renewed 145,000 square feet at 111 Dunsmuir Street • Borden Ladner Gervais LLP leased 105,000 square feet at 200 Burrard Street • Farris Vaughan renewed 67,000 square feet at 700 West Georgia Street Suburban Office Due to decreased supply in the third quarter, suburban markets saw a drop in vacancy rates, to 13.5% from 15% last quarter. This marks the first quarter that office vacancies have decreased in a year, with 2,662,000 square feet of space, down from 2,866,000 square feet last quarter. This lack of availability in some areas may help increase the rental rates
in certain areas. While rates may have dropped again this quarter in all submarkets, the drop was far less substantial than in previous quarters, due to the increased activity. New Office Construction Several buildings are currently under construction in Metro Vancouver, totalling 1,340,456 square feet. About 32% of this, 429,956 square feet, is in the City of Vancouver, but only 55,000 square feet or 4% is in the downtown core, with Bosa Properties new building, the Jameson House. While development in the downtown core has been slow, the coming years hold a number of promising developments. The GM Place Tower is still in planning, hoping to break ground in late 2010. Bentall Capital’s project at 745 Thurlow is a much anticipated project that should add over 420,000 square feet of office and retail space to the market. Aquilini Investment Group is proposing a 236,000 square foot office tower at 800 Griffiths Way. Recently, Austeville Properties announced plans for a 481,000 square foot office tower on the 400 block of West Georgia Street. In the Suburbs, there are currently 7 projects under construction, totalling 910,500 sq ft. Surrey is home to most of these new projects (4 of the 7 in the suburbs), including the the Panorama Place (Build(Continued on Page 4)
Historic Municipal Vacancy Rates
This quarter has clearly demonstrated the developing dichotomy the Vancouver market has experienced in the past, where vacancies in the suburbs have reached as high as 17-18% and where vacancies in the Downtown core have reached as low as 4-5%. As more tenants move into the higher quality, yet smaller spaces downtown, we expect to see this trend continue. In response, several developers have been working
Metro Vancouver Office Report - Third Quarter 2010
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Metro Vancouver Office Report Third Quarter 2010 Summary Statistics - Third Quarter 2010 Total buildings
Total area (sq ft )
Total vacant (sq ft)
Total vacancy (%)
Sublet Vacant (sq ft)
Average asking lease rate ($/sq ft)
Average taxes and operating costs ($/sq ft)
Metro Vancouver
685
51,588,374
4,639,080
839,375
9.0
20.0
11.9
Class A
274
29,849,526
2,767,282
601,658
9.3
22.4
12.5
Class B
252
15,237,355
1,170,105
205,229
7.7
19.5
12.1
Class C
158
6,469,493
696,447
32,488
10.8
17.1
10.8
Downtown Core
157
20,489,533
1,053,491
228,749
5.1
23.9
14.8
52
12,516,421
434,621
149,016
3.5
30.6
18.3
Class A Class B
53
5,385,333
354,142
62,303
6.6
25.2
14.9
Class C
52
2,587,779
264,728
17,430
10.2
17.9
12.1
Broadway Corridor
81
4,086,965
199,880
35,499
4.9
21.1
14.7
Class A
31
2,147,433
112,248
24,267
5.2
22.7
15.1
Class B
30
1,350,757
70,204
10,551
5.2
21.3
15.1
Class C
20
588,775
17,428
681
3.0
16.8
12.6
Surrey
48
2,822,470
411,610
7,954
14.6
19.3
9.2
Class A
24
2,032,331
367,712
6,838
18.1
20.7
9.0
Class B
15
563,767
33,609
1,116
6.0
17.2
9.1
Class C Richmond
9
226,372
10,289
0
4.5
13.5
11.8
86
5,184,049
914,658
202,252
17.6
15.0
9.0
Class A
49
3,449,340
696,037
175,881
20.2
16.6
9.3
Class B
28
1,287,536
145,083
26,371
11.3
13.8
9.3
Class C North Shore
9
447,173
73,538
0
16.4
10.7
7.5
51
2,282,147
168,888
48,394
7.4
19.7
10.7
Class A
16
850,109
60,382
9,800
7.1
23.4
11.8
Class B
25
1,064,845
96,773
33,070
9.1
18.7
10.8
Class C
10
367,193
11,733
5,524
3.2
17.0
9.1
Burnaby
126
9,652,654
1,167,537
217,162
12.1
18.9
11.4
Class A
69
6,606,774
901,466
184,765
13.6
21.5
11.9
Class B
42
2,435,342
187,097
30,586
7.7
17.1
11.5
Class C
15
610,538
78,974
1,811
12.9
16.4
9.0
Yaletown
39
2,151,391
111,055
6,282
5.2
23.1
11.9
Class A
6
594,045
3,042
0
0.5
28.0
14.2
Class B
15
929,254
22,597
5,575
2.4
24.3
11.7
Class C
18
628,092
85,416
707
13.6
20.9
11.5
Metro Vancouver Office Report - Third Quarter 2010
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Metro Vancouver Office Report Third Quarter 2010
Property address
Notable office lease transactions - Q3 2010* Municipality Tenant
111 Dunsmuir Street 200 Burrard Street 700 West Georgia 13777 Commerce Parkway
Vancouver Vancouver Vancouver Richmond
Property address
Municipality
1133-1155 Melville Street 157-199 West Hastings Street 541-555 Howe Street 1300 Richards Street 5731 No. 3 Road 269-271 East Pender Street
Vancouver Vancouver Vancouver Vancouver Richmond Vancouver
ing H), the Benchmark Business Centre II, the Dean Business Centre II (which should be available early Q4) and the Grandview Business Centre. New Westminster, however, has the Brewery District under construction, a project slated for completion in mid 2011 that would bring 150,000 square feet of office space to the market. There is some office space under construction in Langley as well, with about 68,000 square feet in the Langley 200 Business Centre. There are also a number of projects that are still in planning or pre-leasing in the Metro Vancouver area. Most of this is in the suburbs, including Metrotower III, with 400,000 square feet expected in Burnaby, the Canada Line Office Buildings with nearly 200,000 square feet and the Gateway Business Park in Surrey with over 500,000 square feet coming to the Market. The City of Vancouver will see some new supply as well with projects like the Containers on Terminal, with a total of 225,000 square feet, and the GM Place Tower, with 162,000 square feet.
Notable office sale transactions - Q3 2010* Price Size (sq ft)
$27,650,000 $15,531,436 $8,425,000 $6,150,000 $3,494,900 $1,368,000
99,100 50,000 21,075 13,264 6,265 9,150
Looking Ahead •
•
•
Size (sq ft)
AMC Borden Ladner Gervais LLP Farris, Vaughan, Wills & Murphy LLP Stewart Olsen Dominion Construction
As summer comes to a close, and people return to work, we expect to see increased activity in the Downtown market. Decreasing supply and increased demand will help increase rental rates, particularly in areas with high quality office space. Cautious prospecting tenants are still fuelling a demand for smaller, high quality office space, particularly strata properties. We expect to see this trend continue, matched by a rise in lease rates in areas like the Downtown Core and Yaletown. This may force current tenants to move to more commodity space if they cannot afford the increased rates when their leases expire. Vacancy in the suburbs is expected to plateau going into next year as most construction is nearing completion. While we expect to see a increase in vacancy in the fourth quarter, we do not expect to see much new supply in the new year, particularly in the suburban markets as the demand catches
145,000 105,000 67,000 14,085
Price/ sq ft Purchaser(s)
$279 $311 $400 $464 $558 $150
Oxford Properties Group Flack Hastings Properties Ltd. 198198 Enterprises Ltd. Wall Financial Corp. Postmedia Network Inc. 0887428 B.C. Ltd.
DTZ Barnicke Commercial Team Neil McAllister Tom Bakker James Bayley Tony Capolongo Conor Finucane Howard Malchy Jason Marriott Don Mussenden Steve Schweigert Rand Thomson Chris Walters Stephen Webber
Definitions Absorption: Refers to growth or net change in occupied space over time. Inducements: A form of monetary enticement given by a landlord to a tenant. New Supply: New space entering the market through new construction. Under Construction: Projects that are currently being built but are not yet completed. Vacancy Rate: The current amount of vacant building area compared to the total amount of existing inventory.
For more information please contact: James Fraser, Director of Research james.fraser@dtzbarnicke.com (604) 630 3405
DTZ Barnicke Vancouver Limited
800 - 475 West Georgia Street, Vancouver, B.C. V6B 4M9 Tel: (604) 684 7117 Fax: (604) 684 1017
*Properties over 8,000 sq ft only If you would like to receive this report via email, please contact us.
**Data sourced from RealNet Canada Inc. www.realnet.ca
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