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Pandemic fails to slow city’s office space momentum

Metro Vancouver lease market is already tightening as demand returns
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Vancouver’s commercial real estate market has held up under the pandemic despite widespread adoption of remote working options | Chung Chow/BIV files

The Vancouver real estate market has long been a juggernaut that has barely slowed down during global economic crises.

It hasn’t broken stride during the global COVID-19 pandemic, which has registered as barely a ripple in the city’s ever-surging real estate prices.

Before the pandemic, vacancy rates for Metro Vancouver office space were at all-time lows. In 2019, the vacancy rate was 2.5 per cent in downtown Vancouver and slightly over three per cent for Metro Vancouver, according to data from the CBRE Group. Through the pandemic, those numbers have more than doubled, to roughly 7.5 per cent for both Metro Vancouver and the downtown core. While a 100 per cent increase in the vacancy rates may seem like a move in the wrong direction, it has to be seen in light of Vancouver’s extremely tight pre-pandemic market.

“Eight per cent is otherwise considered a very healthy, balanced office market,” said Robin Buntain, principal at Avison Young.

The vacancy rate increases also haven’t had much of an effect on price, according to Buntain. Any landlords with vacancies have been able to attract tenants with inducements like larger tenant improvement packages or a turnkey-ready properties without affecting rental rates.

Vancouver’s real estate market hardly skipped a beat during the pandemic because, Buntain said, “it didn’t really have to.” While some smaller, independent landlords may have had to lower rents to fill a space quickly, larger, institutional landlords, which make up much of the rental landscape, had the resources to weather the storm without having to reduce rates.

But that demand is beginning to return, and prices that had been temporarily stalled during the pandemic are beginning to rise.

“Now that we’re through that stage of the pandemic and we’re definitely seeing an uptick in demand, I would say, generally speaking, rates have gone up,” Buntain said. “[Lease agreements have taken] different structures, but generally speaking the rates have increased over the past three years.”

Businesses choosing to go remote or to adopt a hybrid workforce model haven’t left the owners of downtown office buildings desperate for tenants. While some businesses may be looking to lease less space, they aren’t necessarily affecting the broader market where demand is increasing.

But where is that demand coming from?

Ted Mildon, senior director of office leasing for Oxford Properties Group, said it’s from a diverse range of companies. While some companies are coming back and looking for less space because of a hybrid workforce model, that gap has been more than compensated for by new entrants as well as businesses that have expanded during the pandemic and are now looking for more space.

“The market in general is starting to show decreased availability,” said Mildon. “Which is really positive for the trend of people coming back to an office-centric workplace in Vancouver.”

The shift to a hybrid workforce isn’t necessarily showing up in the raw demand as much as the types of spaces business are looking for since the onset of the pandemic. Prior to COVID 19, businesses were interested in features and amenities like fitness rooms that catered to their staff. Now, however, businesses are prioritizing more collaborative spaces that foster teamwork and co-operation, according to Mildon and Buntain.

Generally the downtown Vancouver office space market is tightening. Although the city’s vacancy rate is characteristic of a healthy real estate market, it is likely on the road back to historically low vacancy rates for office real estate.

“I have tremendous optimism for continued success in Vancouver,” said Mildon. “Firstly because the development pipeline continues to be extended, but also because all roads lead to downtown, and if you’re an employer looking to locate somewhere where all your employees can get to easily, that’s downtown Vancouver.” •