Posted Apr 6, 2024, 1:24 AM
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Join Date: Dec 2015
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If current absorption trends continue, the market could end up at eight per cent vacancy by 2028, Gardner said. But if absorption escalates to 150 per cent of the current rate, the market could end up at five per cent vacancy.
Looking at class-AAA buildings only, vacancy could fall as low as 2.2 per cent by 2028 if the market experiences 150 per cent absorption during that time frame, Gardner added.
Trepp said current conditions are a return to health for the market. In late 2019, if tenants were seeking a space of 40,000 sq. ft. or larger downtown, they had three options, Trepp said. If they were seeking a space of 100,000 sq. ft., there was one option. "Today, if you're looking for 40,000 sq. ft., you’ve got 16 options downtown, and if you're looking for 100,000 sq. ft. or more, you’ve got six. That's a much healthier market."
Moreover, Trepp and his fellow panelists agreed Vancouver’s tenant mix is more diverse than ever with tech companies, law firms, accounting firms and even mining and natural resource companies showing a renewed eagerness for space.
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"What keeps me up at night is that multiple sectors kind of go backwards," according to Chuck We, executive vice-president, Pacific Northwest/Canada office operations with Hudson Pacific Properties, the owner of Bentall Centre. While tech demand is blunted right now, any new retreat by the industry locally could spell trouble.
We said the education sector is another risk as the federal government plans to reduce the number of foreign students coming in (meanwhile, the B.C. government is cracking down on dubious post-secondary organizations operating as student visa mills).
Any substantial increase to the cost of capital would also hurt demand, We added.
"It's going to sound paradoxical, but (the main threat is) a lack of supply," Trepp said, explaining that if most demand stays focused on the top-quality offices, the current vacancy of roughly 13 per cent will start to come down.
“Now, that's roughly 2.3 million square feet,” he said. “Last year, there was 800,000 square feet of positive absorption in the class. If we had three years like that, we're out of space."
If absorption reverts to the mean, the market could experience a space crunch in five years, Trepp added.
"Nobody's building; nothing's delivering in the next five years, so I think that’s the biggest risk," he said.
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However, Trepp cautioned that the last pro-forma he saw showed a new office building would need rents of at least $80 per square foot to get an economic return, given high construction costs, land values and development timelines. Rent for prime space today is roughly $55.
“We've never seen that sort of appreciation in Vancouver, and we were in a market where we had three per cent vacancy,” he said. “That's really the impediment to new construction.”
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https://renx.ca/vancouvers-office-ma...than-you-think
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