Downtown Vancouver office vacancy rate jumps above 10 per cent

With many people wanting to continue working at home post-pandemic, more space could hit the lease market.

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The office vacancy rate in downtown Vancouver has eclipsed 10 per cent for the first time in almost two decades, a trend driven by tech and other companies giving up leased space as they cut head count or let people continue working from home.

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The rate is in keeping with the trend of double-digit figures in other cities.

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In Toronto, the downtown office vacancy rate during the first quarter of 2023 was 15.3 per cent, which is the highest it has been since 1995. In Ottawa, at 13.2 per cent, and in Montreal, at 16.5 per cent, the rates recorded are all-time highs, according to CBRE.

Meanwhile, in San Francisco, the downtown office vacancy rate is at the highest recorded, at over 30 per cent of total space available for either lease or sublease. That is higher than the city experienced just after the dot-com crash in 2002 when it was at about 20 per cent.

The last time the vacancy rate in downtown Vancouver was over 10 per cent was in 2004 after the dot- com crash when start-up technology and online companies went bust.

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“It was the tech wreck back then,” says Ross Moore, a managing broker at real estate company Cresa.

Across the board, vacancies have been prompted by companies managing a tepid response to return to office plans. Also, technology firms are shedding space because they aggressively expanded staff during the pandemic and are now retrenching.

Galvanize Vancouver, which used to be known as ACL Services, has put another floor on the sublease market at its 980 Howe Street building, adding to the three it recently listed, for a total of over 60,000 square feet that is available.

“There are still big chunks that will hit the market,” said Moore, explaining that some companies are still working out what to do when they “have 10,000 square feet and just three employees coming in regularly.”

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With this playing out, brokers are trying to analyze some micro-trends.

In Class AAA buildings, which are defined by having prime locations and the highest-quality finishings and amenities, 82 per cent of the vacant spaces are concentrated on lower and middle-level floors, according to a new report by Avison Young.

In past markets with high office-vacancy rates, companies have moved from buildings with lower commercial grades, such as class B or C, to class AAA ones as prices soften.

But it seems that, at least in the newer, more-expensive buildings, tenants are also moving from lower to higher floors in buildings in the hope that city and mountain views or private terraces might be features that could help entice employees back to the office.

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At the same time, on lower floors in lower grade class B and C buildings, which are cheaper, there is some relatively stronger leasing activity with tenants looking for better value.

The part of the market between these two is where companies are giving up the most space, in the middle and upper floors of class A buildings. Sublease vacancy rates are at 43 per cent for middle floors and 40 per cent for upper floors, according to Avison Young.

Overall, there is some softening of prices in the sublease market as supply grows, but there isn’t significant cutting of lease rates by landlords, said Moore.

For one thing, there is a limited number of landlords and they are mostly large pension funds that are not affected by debt and able to hold properties for the long term.

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“It’s a valuation game. At the end of the year, the value of their assets is based on numbers such as their asking rental rates,” said Moore.

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