A “shock wave” increase in sublease space has nearly doubled the vacancy rate in downtown Vancouver office towers, according to a new survey by CBRE.
The commercial agency reports that the number of subleases has increased from 37 at the end of 2019 to 90 this month, representing more than 500,000 square feet of space, as a direct result of the pandemic.
“The first real shock waves to hit the market were delivered via the downtown Vancouver sublease market. Uncertainty pushed some tenants to withhold from moving forward with leasing contracts, with some refusing to take occupancy. This has resulted in a proliferation of subleasing activity,” the June 15 report stated.
Downtown Vancouver has about 24 million square feet of office space and the subleases have pushed the vacancy rate to 4%, up from 2.2.% at the start of the year.
But CBRE notes that Vancouver still has one of the lowest office vacancy rates in North America. Only six of the available subleases pushed back onto the downtown market are bigger than 10,000 square feet and only five are greater than 20,000 square feet.
“With current low vacancy rates, coupled with the long lead time before the new office buildings under construction are complete, we expect a minimal negative short-term impact on office rental rates,” CBRE noted. “While some smaller users may benefit from potentially lower rental rates in short-term sublease space, the integrity of the overall market is expected to remain very stable.”
About 3.9 million square feet of new office space is under construction in Metro Vancouver, but two-thirds of that space is pre-leased, the study noted.
The agency’s most conservative estimate is that the Vancouver office vacancy rate may reach 7% by 2024, still below what it considers a “balanced” market.