For the first time in a year, Metro Vancouver’s office vacancy rate grew last quarter, with an increase of 30 basis points quarter-over-quarter to 6.6 per cent, according to CBRE Canada’s third quarter office figures.
While the region saw an overall increase in vacancy for almost all classes, Vancouver’s downtown saw a decline of 10 basis points. According to CBRE, this indicates that flight-to-quality remains prevalent, meaning investors are looking for safer investments.
Roughly three million sq. ft. of the downtown core is under construction, according to Andre Alie Day from CBRE High Technology Facilities, with 81.8 per cent of that space pre-leased. For Class AAA inventory, the vacancy rate declined 110 basis points to 4.6% and is the lowest of any downtown class, according to CBRE.
Vacancy is 80 basis points below the peak in the third quarter of 2021 of 7.4 per cent, said CBRE. The increase in occupancy is backed by significant leasing activity, coming to just under one million sq. ft., representing a 13.7 per cent decline from the previous quarter. Though leasing activity remained relatively flat compared with last quarter, there was, for the first time in five quarters, a small decline in average asking lease rates of 1.7 per cent quarter-over-quarter to $33.36 per sq. ft., according to CBRE.
Suburban markets saw a cool-off with an increase in vacancy by 70 basis points quarter-over-quarter to 6.2 per cent. This is a result of numerous sublease listings added to available inventory, said CBRE.
Trends in vacancy rates are also being affected by numerous large blocks of space that are being transacted upon and added into the market, resulting in unsteady vacancy rates, said Day.
“Overall, we're still quite healthy. But due to some vacant space coming back to market and some existing buildings downtown and a recent increase in sublease space, we have seen vacancy rates increase,” he said.
Construction activity continued to keep up pace with recent demand, notably in areas such as Central Surrey, Mount Pleasant and the Broadway Corridor, said Day.
In what the CBRE classifies as the Broadway Corridor (Broadway, False Creek, Mount Pleasant, East Vancouver and Strathcona), there is an increase in buildings dedicated to mixed use, office and industrial space with a focused towards heavy technology, healthcare, biotech life sciences and creative style technology tenants, according to Day.
“It's been a super attractive area to them because it's just outside of downtown. A lot of people live in the East Vancouver and Mount Pleasant areas. They have super easy access for biking and transit, it’s close to all the breweries and cool coffee shops, bakeries and restaurants. So, that area is certainly up and coming,” he said.
Further south, Surrey has done very well with PCI Development and the King George Hub, a five-phase master planning community, which has added roughly 300,000 sq. ft. of office space with another 30,000 sp. ft. under construction, according to Day. This is in addition to the Lark Group’s Health and Technology District.