Vancouver office market receiving a post-COVID boost

Tech, life sciences tenants are showing interest in downtown space

B6, set to completed in 2023, is 47 per cent preleased as tenant demand roars back with the return of in-person work | Photo: Musson Cattell Mackey Partnership/BentallGreenOak

Demand for space as companies return to in-person work arrangements will continue to be influenced by the COVID-19 pandemic, in some cases in unexpected ways.

Speakers at the April 21 meeting of commercial real estate association NAIOP said demand for space has bounced back, and some new drivers are in the offing. The panel discussion focused on the investment market, and the fundamentals for office investment are strong.

“[Demand] has snapped back really quickly, and we do have some appetite for some of that Class A office product in Vancouver,” said Jaclyn O’Neill, principal, investments with BentallGreenOak.

Preleasing at B6, a 32-storey tower with 534,000 square feet set to complete next year, is an example. It’s seen several inquiries after not a single offer during the pandemic, she said. Preleasing now stands at 47 per cent.

While BentallGreenOak has sold some smaller office assets in B.C., this constituted adjustments to its portfolio rather than a shift away from office.

“Going into COVID, we found ourselves really over-allocated to office compared to other asset classes,” O’Neill said. “So over the past year and a half we did sell some of our smaller office assets in BC, more right-sizing our allocations to office and knowing that we had B6 under construction.”

Now that the market is emerging from the pandemic, she sees demand buoyed by the tech sector but also life sciences thanks to greater interest in firms that defend health – not only in workplace protocols, but in their actual work.

“I think there could be some fundamental shifts in the demand drivers of the office market,” she said. “We’ve seen it on the tech, I think we’re going to continue to see some of that, but also maybe some growth on the life-sciences side, some of those tail-winds that we’re seeing coming out of COVID. People are a little more cognizant of health and safety in that regard.”

Panellist Shaun Blythen, director of acquisitions with Nicola Wealth Real Estate, said the company is focused on office space in Mount Pleasant, where strong demand from the tech sector has made spec building possible.

“It’s one of the strongest office markets in the country,” he said.

Downtown core office vacancies average 7 per cent, according to the latest statistics from commercial brokerage JLL. The firm says the comparable rate for Mount Pleasant, when two buildings awaiting occupancy are factored out, is just 4.2 per cent.

Reliance Properties Inc. president and CEO Jon Stovell is also confident of office demand.

Reliance recently began construction of a 344,000-square-foot office tower at 1166 West Pender in partnership with Hines, and Stovell cited the strength of demand from professional services and tech companies with the decision to move forward.

Reliance also plans to move forward next year with the development of 440,000 square feet at 601 West Pender Street.

But with costs rising across the board, Stovell expects the next 12 months to see a re-indexing to the new price points. Rental rates will be part of the equation as landlords seek returns and tenants pay more for space just as they’ve been paying more for wages, energy and other input costs.

“They have to [rise],” Stovell said of rental rates. “It all comes down to markets re-indexing to support higher rents in all the asset classes.”

Triple-net rents in the downtown core averaged $63.46 a square-foot in the first quarter, JLL reports. This is up from $58.72 a year ago.