"If you're looking for space in the downtown core, it almost doesn't exist."
Nearly four million square feet of new office space is set to be built over the next four years in downtown Vancouver, but up to 46 per cent of that space is already spoken for, local commercial brokers say.
Between 2020 and 2023, about 3.8 million sq. ft. of new office supply will be delivered to the market and roughly 1.2 million square feet of that has already been pre-leased, said Colin Scarlett, an office leasing specialist and executive vice-president with Colliers International in Vancouver.
An additional 558,000 sq. ft. of option space, meaning space that pre-leased tenants could also take at their choice, is also agreed to, he said.
“If you add all that space up … that gets you to 46 per cent of the total new supply is already essentially spoken for,” Scarlett told Postmedia.
Office vacancy in Vancouver has been declining during the past year, and by December, vacancy hit the lowest mark Vancouver has ever experienced, Scarlett said.
The downtown vacancy rate has fallen to three per cent, while the Greater Vancouver rate has sunk to 4.5 per cent, he said. “Those are unbelievably low numbers.”
Scarlett said Vancouver and Toronto now have the lowest office vacancy numbers in North America.
The market has been especially tough for large occupiers in search of suitable space.
A large occupier would be a staff of 200 people in need of about 30,000 sq. ft., which is about two whole office floors of a downtown tower, Scarlett said.
“If you’re looking for space (like that) in the downtown core, it almost doesn’t exist,” he said. “(The available spaces) are either lower-quality buildings or the tenant will have to invest a bunch of money in the space, so there’s a big capital requirement.”
He said few options remain in the suburban markets. “Larger occupiers are having a really difficult time.”
It’s possible that all of the new buildings coming to market will be 100 per cent spoken for by the time they are delivered in 2023, Scarlett said.
“Many of (those buildings) will be occupied by users who are currently not operating in Vancouver or certainly not to the same size,” he said. “We don’t see any let up in demand barring some kind of economic incident until these new buildings are delivered.”
Ross Moore, a tenant service specialist and managing broker with Cresa in Vancouver, said his numbers suggest that about 37 per cent of the upcoming office supply has been pre-leased.
“Keep in mind that some, not all, but some of those groups are leaving space behind,” Moore told Postmedia. “So yes, you’re (nearly) 40 per cent leased, but you’re leaving three, four, five-hundred-thousand square feet.”
He said the challenge is always with the larger users trying to find the right space. “It’s not good for anybody.”
Landlords would also welcome some supply relief as they struggle to look after existing tenants who may need to relocate, expand or occupy swing space during renovations.
“The (tenants) need somewhere to go while the work is being done, and when your building is full, you basically can’t get that work done,” he said. “You just can’t move people around.”
Moore said the leasing market has been noticeably quiet recently.
“(Prospective tenants) have either found homes or they have just decided to stick with what they’ve got,” he said. “When there isn’t an obvious building or an obvious space to go to, companies lose some of the motivation to move and then they just stick with what they’ve got.”
Moore added that the vast majority of the leasing he does is with companies that already have a local presence, and companies seeking spaces of about 4,000 sq. ft. or less generally find what they need. “Tenants know that there isn’t a lot out there so they’re all pretty flexible at the moment.”