NAIOP November 16 2020

VA N CO U V E R C H A P T E R 21ST ANNUAL

Regional

OFFICE

Cost of Business Survey Fall 2020

Vancouver Centre II (VCII)

by GWL Realty Advisors and HOOPP.

2

Regional Office Cost of Business Survey — Fall 2020

Message from the President O n behalf of NAIOP Vancouver, I am pleased to present the 2020 edition of the NAIOP Cost of Business Survey (COBS). The purpose of this annual report is to provide a scorecard that ranks municipalities in Metro Vancouver based on their respective timelines and costs associated with constructing a hypothetical development project. This year the focus is on the office asset class.

a defining moment, with its future being debated in the media and on video conference calls daily as a result of the COVID-19 pandemic. With this in mind, we hope that you find the 2020 COBS report to be particularly valuable in this time of uncertainty, as it contains a summary of data and perspectives from your peers within the commercial real estate industry.

The scorecard is used to identify municipalities that have excelled in fostering environments that are positive to business creation and operation, with COBS awards given for Most Improved Fees, Most Fiscally Responsible and Most Improved - Approval Timing. You will also find a market overview detailing the latest statistics and trends in the office asset class for Metro Vancouver, interviews with a member of staff from each of the municipalities receiving an award, and perspectives on the current office market from experts in the industry.

I would like to thank the many individuals who contributed to the 2020 COBS report as listed below and we hope that you enjoy reading one of our most important annual deliverables.

Sincerely, Jason Kiselbach - Senior Vice President & Managing Director, CBRE Limited Thank you to our contributors!

Q

Anna Lam - Leasing Representative, Oxford Properties Group

Q

Carson Pennock - Director, Office Leasing, Cadillac Fairview

The office asset class is currently facing

Future of Office Space T he most talked about asset class in commercial real estate during the pandemic has been the office sector.

But while demand has been reduced in 2020, most experts in the field expect pre-COVID demand to resume as the

economy begins to open up again. We canvassed three leaders in the office sector on the west coast for their thoughts on how things might play out in the coming months and years. The overall theme is that Vancouver’s strong underlying

Index

Q

Ryan Berlin - Senior Economist & Director of Intelligence, rennie

Q

Chris Wilson - Business Development Manager, Business in Vancouver

Q

The Team at Malachite

Message from the President . . . . . . . . . . .2 Future of Office Space . . . . . . . . . . . . . . .2 2020 Highlights . . . . . . . . . . . . . . . . . . . .3 2020 Winners . . . . . . . . . . . . . . . . . . . . . .3 Office Building Prototype . . . . . . . . . . . 4-5 Survey Summary . . . . . . . . . . . . . . . . . . . .6 Municipal Fees . . . . . . . . . . . . . . . . . . . . .7 Building Permit Data . . . . . . . . . . . . . . . . .7 Mill Rates . . . . . . . . . . . . . . . . . . . . . . . . .8 Timing . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Market Update . . . . . . . . . . . . . . . . . 10-11

ACKNOWLEDGMENT: ACKNOWLEDGMENT: NAIOP would like to acknowledge and thank all of the municipalities that took part in this year’s Cost of Business Survey. Participation is voluntary and the time expended to respond to it can be significant for planning, engineering and building departments. Development in any jurisdiction is a partnership between business and the community. NAIOP is pleased to be in a position to work, on behalf of our members, with all of the Metro Vancouver jurisdictions that participated in the publication of this information for the business community. NAIOP would also like to acknowledge the contributions of CBRE Limited for the industrial market statistics. If you have any questions on the data, please contact the Cost of Business Survey Committee at cobs@naiopvcr.com.

fundamentals provide optimism for a return to office work, with some innovative and necessary modifications.

In other words, the Vancouver office market is well positioned to weather the short-term volatility from the pandemic.

According to a recent report from CBRE, a conservative forecast scenario, including newly-delivered sublease space, would place vacancy rates at a peak of only 7% by 2024, still under the 8% that represents a balanced office market.

“We believe that there will always be enormous value in bringing people together to collaborate, learn and grow.

As professionals in the industry, we have the opportunity to inspire people to be their best in the workplace, and this hasn’t changed – whether it is a reconfiguration of indoor and outdoor spaces for adequate distancing or new and innovative amenities to fit in with how people want to work. Hudson Pacific is currently enhancing the Bentall Centre campus by activating outdoor plazas, adding arts and culture offerings, and offering amenities including an Athletic Centre and rooftop dog park. All of these changes incorporate the latest health and safety guidelines to ensure our tenants experience a safe and comfortable return to the office.”

“With the pandemic, the pendulum of the work from home trend went too far. It just doesn’t work for every industry. It might for some, but I don’t know how you remain competitive and productive without the interactions that spark ideas. But now, six months in, the pendulum is swinging back, and people are now creating and reinventing new office spaces that adapt to the restrictions, but that also inspire collaboration, competitiveness and culture while embracing a bit more freedom for the work force. In some cases, local companies are expanding their office footprint to do so. We are reinventing the way we think about office space and we are being challenged to create spaces that excite and inspire people.”

“We continue to believe that British Columbia and Vancouver have a well-diversified, strong economy.

The things that made Vancouver successful in the office sector remain intact and strong. On top of that, Vancouver has a competitive cost advantage over other west coast technology markets in the U.S. and the city is viewed as a very positive place to live and work with a high quality of life.”

Chuck We,

Kevin Nelson,

David G. Routledge,

Senior Vice President, Western Canada, Hudson Pacific Properties

Executive Vice President with CBRE Vancouver

Vice President and Head of Western Canada Office, Oxford Properties Group

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Regional Office Cost of Business Survey — Fall 2020

2020 Highlights N

ow in its 21st year of its publication, the NAIOP Cost of Business Survey offers three annual awards to municipalities that have implemented improvements in development costs and processing times.

Our assessment of 17 Metro Vancouver municipalities provides our membership and the business community at large with an essential reference tool for considering development areas. The survey is also a tool for municipalities themselves as a gauge for their own development costs and approval processes as compared to their neighbours.

This year, the 2020 NAIOP Awards for Municipal Excellence will be acknowledging three municipalities that have excelled in creating environments positive to business creation. The three categories of awards are: Q

Most Improved - Fees: the most improved compared to previous survey results

Q

Most Fiscally Responsible: cost increases kept in line with overall inflation

Q

Most Improved – Approval Timing

The 2020 winners are:

3. North Vancouver: Most Improved Approval Timing

1. Abbotsford: Most Improved – Fees

The City of North Vancouver reported a decrease of 29% of their total approval processing lead time.

The City of Abbotsford demonstrated a 5.87% reduction in fees from 2018 to 2020.

2. Surrey: Most Fiscally Responsible The City of Surrey had a negative annual inf lation rate (-4.27%) from 2010 - 2020.

We interviewed some of the winners about the improvements they have made, and the impact those changes have had on businesses and the real estate community.

2020 Winners Q & A Abbotsford: Most Improved – Fees

Henry Braun is the Mayor of Abbotsford.

Congratulations on winning the Most Improved – Fees award. The City of Abbotsford has demonstrated a significant reduction in development fees the past two years. What changes have you implemented to lead to this fee reduction, and what fees specifically did you reduce?

It has more to do with the fact that we haven’t raised our fees. Our building permit fees are one of lowest in Greater Vancouver and we have reduced some fees, but generally, we try to keep our fees low. I’ve been driving that home since becoming Mayor six years ago.

We are currently in the process of updating our DCC bylaws and they will be comparable to or lower than neighboring municipalities. Two years ago, NAIOP awarded us the most business friendly municipality, and we have continued down that track, trying to create an environment that sets the table for development because that is what makes the economy go around.

What are you most excited about in terms of office projects, or demand?

We see demand in all sectors – commercial, industrial and residential – both multifamily and single family.

We are open for business, especially in our city centre, where we are looking at a complete revamp. The Emco Development project is particularly exciting as it is a comprehensive development with 879 residential units, 32,000 SF of commercial and 340,000 SF of office. It will begin the process of transforming our signature corridor in the city centre where there will be a lot of future redevelopment of existing, older shopping centres.

But it’s not just the city centre. As I look out my window right now, I see 4 cranes in operation. The construction industry is going full bore and COVID hasn’t slowed them down. Developers and builders are telling me their revenue and sales are up. That’s good news.

Any changes on the horizon that might be of interest to the real estate industry?

The Emco project is the largest development we’ve had in a single block in the city, and a lot of people are watching to see how it will work out, because there are other areas ripe for redevelopment on that signature corridor and in the next 5 years, will see some fantastic developments popping up. The market is here.

Developers are selling as quickly as they are building.

Any changes on the horizon that might be of interest to the real estate industry?

The number one thing is to assemble a good team and provide high-quality, coordinated and comprehensive submissions that are complete and organized.

Developers say it’s a breath of fresh air and that it’s harder in jurisdictions west of us.

City of Surrey: Most Fiscally Responsible

Melissa Johnson is a Senior Planner with the City of Surrey.

Congratulations on winning the award for most fiscally responsible municipality. What are you most excited about in terms of office projects, or demand?

I work on the South Surrey planning team, and we have our business parks in Campbell Heights that have seen some big booms in the past few years. As a city, we’re excited about what’s going on in City Centre. We have recently received an application for the development of the centre block site, which will become 1.5 million square feet of office over multiple buildings. That is currently in rezoning, so it’s still a ways off, but office space in City Centre is where the excitement is happening. Council has just adopted an interim policy that requires 50% of new floor area around the Central Skytrain station to be office and and the City Centre

plan is being amended to reflect the need for more office.

Despite COVID, we are seeing ongoing demand for office space in City Centre.

North Vancouver: Most Improved – Approvals

Michael Epp is the Director of Planning & Development for the City of North Vancouver.

Congratulations on winning the Most Improved for Approval Timing. What are you most excited about in terms of office projects or demand?

We have been seeing a number of great companies that were created here on the North Shore looking for larger new office space in North Vancouver. It’s great that these companies are interested in staying local and helping us grow as a “complete community.”

What feedback have you received to date about improvements you’ve made to the approvals process?

Like many municipalities, we have been struggling through the new environment with COVID-19. This crisis has also created opportunities, and the city has very quickly adopted a number of very positive changes to our process — we were able to move forward quickly with electronic plan submissions and making many of our services available online through the CityServe portal.

Any changes on the horizon that might be of interest to the real estate industry?

We’re very much looking forward to continuing to build on our improvements in delivering online services by expanding the CityServe portal. Soon you will be able to schedule inspections and apply for most types of permits fully online, making City services more convenient and efficient.

4

Office Building Prototype The proposed development is for a 50,000 square foot (4,645 square metre) “Class B” office building comprising a total of two (2) storeys with a 25,000 square foot (2,322 square metre) floor plate. The building is proposed for an unsubdivided, non-office/commercial zoned 2.5-acre lot which requires a number of approvals as listed below.

Development context: ■ Located within an area designated in

the municipality’s Official Community Plan and Metro Vancouver’s Regional Growth Strategy as suitable for office and commercial use ■ Located within a DP area ■ Located within a DCC/DCL-applicable area ■ 295 feet (90 metres) of lot frontage on a 15-year-old dedicated municipal roadway and interior parcel lines with adjacent lots after subdivision ■ Site is assumed to have been cleared of all trees and filled to a suitable elevation

Regional Office Cost of Business Survey — Fall 2020

Regional Office Cost of Business Survey — Fall 2020

Building assumptions: ■ Complies with all design bylaw regulations

within the governing jurisdiction ■ The application and its content have

been prepared using the services of a registered architect, landscape architect and professional engineern ■ Fully sprinklered throughout Development requirements: ■ Rezoning to general office zoning as per

jurisdiction, assuming proposed density conforms to zoning bylaw ■ Land subdivision to create one parcel of 2.0 net acres less road and other dedications ■ All required permits and fees Construction costs: ■ $235 per square foot/$11,750,000 ($210

per sq.ft. for building + $25 per sq.ft. for site improvements) ■ $600,000 for offsite works (street and drainage improvements - not DCC rebatable)

5

6

Regional Office Cost of Business Survey — Fall 2020

Survey Summary T otal municipal fees from 2018 to 2020 for the office development scenario have increased by an average of 10.6% across all participating municipalities. Development & Building Permit Fees are on the rise, with 13 of the 17 municipalities reporting an increase in this category, with only one holding steady with fees - City of White Rock, and three lowering - City of Abbotsford, City of Chilliwack and the City of North Vancouver. The City of Abbotsford in particular reported a 5.87% decrease in their Fee over the last two years.

A dramatic improvement on timing can be seen from the City of North Vancouver with a 120 day improvement in the approval process.

The average timeline has increased 61.6% over all municipalities, including 3 municipalities showing no change since 2018 - City of Maple Ridge, City of Langley and City of Richmond.

Please note these times largely rely on the development permit, subdivision and building permits being processed concurrently with the rezoning, and any delays in one phase of the process can significantly affect the overall timing for each municipality.

Municipality*

Total (Excluding Metro Region Charges & Taxes)

2020 Approval Timing (days)

City of Burnaby

$250,240.87

120

City of New Westminster2

$274,957.50

150

City of Port Moody

$336,245.05

180

City of Chilliwack

$350,212.10

180

City of Maple Ridge

$367,380.91

240

City of Delta

$368,729.75

240

District of Mission

$373,379.54

240

City of Langley

$439,431.00

254

City of Abbotsford

$474,421.30

300

City of Port Coquitlam

$514,288.52

307

City of North Vancouver

$527,593.33

381

Township of Langley

$535,729.61

395

$566,210.17

420

City of Surrey

1

City of Coquitlam

$568,563.27

420

City of Vancouver

$584,841.88

515

District of North Vancouver

$763,894.50

645

City of Richmond

$804,958.95

804

District of West Vancouver, City of Pitt Meadows and City of Vancouver did not participate

7

Regional Office Cost of Business Survey — Fall 2020

2018 Rank

2020 Rank

Municipality

Rezoning & Subdivision Application Fees

Development & Building Permit Fees

Administration, Processing & Sprinkler Inspection Fees

DCC/DCL Fee

Sewer & Water Connection Fees

Regional Sewer & Drainage Fees

Taxes

Total (Excluding Metro Region Charges & Taxes)

Percentage Change from 2018

Percentage Change from 2010

Equivalent Annual Average Inflation Rate (2010 - 2020)

Municipal Fees

1

1

City of Maple Ridge 4

$8,012.50

$77,649.75

N/A

$152,578.62

$12,000.00

$133,500.00

$0.00

$250,240.87

77.96%

-6.46%

-0.67%

2

2

City of Burnaby

$18,517.00

$166,201.00

$25,239.50

$0.00

$65,000.00

$12,402.15

$206,696.40

$274,957.50

13.20%

99.51%

7.15%

5

3

City of Delta

$6,249.75

$90,035.00

$24,670.70

$132,289.60

$83,000.00

$133,500.00

$193,002.39

$336,245.05

0.58%

17.16%

1.60%

6

4

City of Port Coquitlam 1

$12,043.70

$97,720.00

$24,697.50

$187,750.90

$28,000.00

$133,500.00

$20,764.98

$350,212.10

3.01%

7.90%

0.76%

7

5

City of Surrey

$9,178.03

$111,622.83

$8,808.05

$218,682.00

$19,090.00

$133,500.00

$450,748.54

$367,380.91

5.65%

-35.38%

-4.27%

3

6

City of Port Moody 9

$12,627.60

$111,809.60

$24,000.00

$220,033.65

$258.90

$183,500.00

$0.00

$368,729.75

29.79%

71.24%

5.53%

10

7

City of Chilliwack 7

$3,244.00

$87,226.75

$9,729.69

$224,492.85

$48,686.25

$0.00

$22,540.14

$373,379.54

-5.79%

87.97%

6.51%

13

8

City of White Rock

$5,600

$121,333.00

$2,614.00

$297,884.00

$12,000.00

$133,500.00

$0.00

$439,431.00

0.00%

218.02%

12.27%

14

9

City of North Vancouver

$7,088.00

$99,180.75

$38,958.25

$274,194.30

$55,000.00

$60,000.00

$119,595.36

$474,421.30

-0.71%

11.46%

1.09%

16

10

City of Langley 2

$7,909.37

$107,259.15

$27,470.00

$341,650.00

$30,000.00

$133,500.00

$705.43

$514,288.52

0.17%

42.37%

3.60%

12

11

City of Coquitlam 5

$13,386.33

$117,466.50

$29,075.50

$367,665.00

$0.00

$133,500.00

$758,545.46

$527,593.33

24.58%

34.77%

3.03%

17

12

City of Abbotsford 6

$7,550.25

$83,078.35

$24,575.00

$420,326.01

$200.00

$0.00

$26,165.55

$535,729.61

-5.87%

10.52%

1.01%

15

13

District of Mission 8

$9,249.00

$87,167.72

$31,102.00

$408,341.95

$30,349.50

$0.00

$158,237.85

$566,210.17

13.68%

50.72%

4.19%

8

14

City of New Westminster 3

$6,410.60

$145,615.67

$25,037.00

$391,500.00

$0.00

$133,500.00

$56,091.77

$568,563.27

45.44%

282.29%

14.35%

9

15

Township of Langley

$14,194.00

$96,205.37

$28,638.80

$445,803.71

$0.00

$133,500.00

$227,123.96

$584,841.88

48.82%

62.19%

4.95%

18

16

City of Richmond

$3,834.00

$117,460.50

$24,000.00

$596,000.00

$22,600.00

$52,500.00

$607,713.50

$763,894.50

4.74%

14.25%

1.34%

19

17

District of North Vancouver $10,635.00

$151,205.50

$27,529.10

$565,900.35

$49,689.00

$60,000.00

$45,848.53

$804,958.95

0.78%

153.52%

9.75%

District of West Vancouver, City of Pitt Meadows and City of Vancouver did not participate * Sorted by Total (Excluding Metro Region Charges & Taxes) 1 Public hearing fee is refundable if not held 2 DCC is $341,650, Combined (city, GVSDD, SD, TransLink) would be $525,1503 DCCs are dependent on the area of the City. Estimate provided for Queensborough area.

3 Sewer and Water Connection Fees included in Administration Fees 4 City does not install Sewer Connection. Water Connection Fees vary depending on variables such as location, depth, material, road condition, etc.

5 Sprinkler Inspection Fee does not include firehose cabinets/outlets, standpipes, etc.

Sewer and Water Connection Fees included in Administration Fees 6 Building Permit Fee includes site servicing permit fee and security deposit amount 7 Building Permit Fee has 25% reduction in fees for fully consulted building. Sprinkler Inspection Fee covered under Building Permit 8 Sewer and Water connection fees assume 150mm service from street to property line, no allowance for bulk meter 9 Sewer connection fee: $194, Water connection fee: $64.90, actual construction cost not provided

Building Permit Data A

cross the Metro Vancouver region, we have seen 526 building permits processed, up from 424 permits reported in 2018. The City of Coquitlam leads this activity with 187 building permits issued for new and major renovation of office buildings in 2019. The City of North Vancouver also issued a large number of building permits at 154. It is important to note, however, these two municipalities submitted permit volumes for all commercial, not just office. In total, these two municipalities have approved over $128 million in commercial construction value.

2020 Rank

Municipality

Total Construction Value

Total Number of Building Permits

1

City of Richmond

$142,355,000

6

2

City of Coquitlam1

$104,945,415

187

3

City of Surrey

$88,278,209

7

4

Township of Langley

$31,998,304

26

5

City of Burnaby

$27,600,000

25

6

City of North Vancouver1

$23,871,330

154

7

City of Delta

$22,642,233

8

8

District of Mission

$14,402,280

46

9

District of North Vancouver2

$10,337,888

10

10

City of New Westminster

$4,838,000

18

11

City of Chilliwack

$3,204,000

7

12

City of Abbotsford

$3,078,300

13

13

City of Port Coquitlam

$2,695,000

18

14

City of Langley

$110,000

1

15

City of Port Moody

$0

0

16

City of Maple Ridge

$0

0

17

City of White Rock

$0

0

District of West Vancouver, City of Pitt Meadows and City of Vancouver did not participate * Sorted by Total Construction Value 1 Values include commercial, commercial, industrial, and institutional for new buildings and/or major renovations.

2 Values include business, personal services, and mercantile occupancies but does not include minor alternations, minor additions and demolitions

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Regional Office Cost of Business Survey — Fall 2020

Mill Rates 2018 Rank

2020 Rank

Municipality

2020 Commercial Mill Rate (Class 6)

2020 Residential Mill Rate (Class 1)

Commercial-to-Residential Tax Ratio

3

1

City of White Rock

6.649

4.143

1.605

5

2

City of Port Moody

5.365

2.648

2.026

10

3

City of Delta

8.524

4.172

2.043

2

4

City of Chilliwack

7.035

3.328

2.114

17

5

City of Burnaby

7.489

3.180

2.355

8

6

City of Richmond

4.269

1.801

2.371

12

7

District of North Vancouver

4.435

1.858

2.387

6

8

City of Abbotsford

8.500

3.300

2.576

7

9

City of Langley

6.413

2.467

2.600

9

10

City of Maple Ridge

8.216

3.128

2.627

19

11

City of New Westminster

11.594

4.381

2.646

1

12

City of Surrey

5.106

1.887

2.706

15

13

City of North Vancouver

5.010

1.778

2.818

14

14

City of Port Coquitlam

7.705

2.629

2.931

13

15

Township of Langley

7.098

2.239

3.170

20

16

City of Coquitlam

7.228

2.201

3.284

16

17

District of Mission

10.987

3.041

3.613

District of West Vancouver, City of Pitt Meadows and City of Vancouver did not participate

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Regional Office Cost of Business Survey — Fall 2020

Timing 2020 Rank

Municipality

Pre-Application Design Review (days)

Rezoning Process (days)

Development Permit Process (days)

Subdivision Approval (days)

Building Permit (days)

2020 Approval Timing (days)

2018 Approval Timing (days)

Percentage Change

1

City of Maple Ridge

N/A

60-120

concurrent

concurrent

concurrent

120

120

0%

2

Township of Langley

30

60-120

concurrent

concurrent

concurrent

150

120

25%

3

City of Langley2

N/A

60-120

N/A

N/A

<60

180

180

0%

4

City of Richmond

n/a

120-180

concurrent

concurrent

concurrent

180

180

0%

5

District of Mission

n/a

60-120

concurrent

concurrent

60-120

240

120

100%

6

City of Delta

N/A

120-180

concurrent

concurrent

<60

240

180

33%

7

City of Port Coquitlam 3

0

120-180

concurrent

concurrent

<60

240

180

33%

8

City of White Rock

14

180-240

concurrent

concurrent

concurrent

254

240

6%

9

City of North Vancouver

28

180-240

N/A

N/A

<60

300

420

-29%

10

City of Chilliwack 1

5-7

120-180

<60

<60

N/A

307

120

156%

11

City of Abbotsford

14-21

180-240

concurrent

concurrent

60-120

381

180

112%

12

City of Surrey

30

240-365

concurrent

concurrent

concurrent

395

300

32%

13

City of Burnaby

N/A

120-180

concurrent

concurrent

180-240

420

240

75%

14

City of Port Moody

60

180-240

concurrent

concurrent

60-120

420

240

75%

15

City of Coquitlam

90

240-365

concurrent

concurrent

<60

515

485

6%

16

District of North Vancouver

100

240-365

concurrent

concurrent

120-180

645

365

77%

17

City of New Westminster

84

120-180

120-180

120-180

120-180

804

180

347%

District of West Vancouver, City of Pitt Meadows and City of Vancouver did not participate 1

Pre-Application Design Review is not required, but may be provided upon request as deemed necessary. Subdivision will be processed after completion.

Building Permit process will initiate following the approval of rezoning and development permit.

3 Building permit application can be submitted once the development permit is issued.

2

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10

Regional Office Cost of Business Survey — Fall 2020

Market Update Vacancy Rate 5.4%

Net Absorption -297,112 sq.ft.

Gross Leasing 634,820 sq.ft.

Downtown office vacancy rises; impact of COVID-19 unfolds

In Q3, the pandemic continued to unfold, and the economic impact due to restrictive health and safety measures progressed. In Q2 2020, Statistics Canada registered an 11.2% drop in real GDP compared to Q1 2020, before recording a 3% increase in July over June. Conference Board of Canada now forecasts the annual GDP settling at 6.6% nationally and -6.0% for Greater Vancouver. As the country reopened its economy in May and June, economic activity surged at the beginning of the summer, and was estimated in July at 94% of its February level, according to Statistics Canada.

Economic sectors are recovering at different paces. While some function at normal levels, even under adapted business practices, others will remain hindered until a vaccine is found.

This, combined with extended border closures and restrictions, and the rising number of COVID-19 cases in recent weeks, suggests that a full economic recovery might take place at a slower pace, confirming the “K shape” of this recession. Government relief packages, such as the Canada Emergency Commercial Rent Assistance program implemented in the Spring have performed well and were extended through the summer and the month of September.

On the employment front, 1.9 million jobs were recovered across Canada, with the unemployment rate settling at 9.0% in September, down from its peak of 13.7% in May, but still high above its pre-COVID-19 rate of 5.6%. In BC, the unemployment rate settled at 8.4%.

Correspondingly, Metro Vancouver’s employment level is estimated to be 7.9% away from its pre-COVID-19 form, as the region relies on the tourism industry, still very much held up by border closures and quarantine measures. Employment gains in BC were led by office-using sectors such as Information, Culture & Recreation; Education; Business, Building and Other Support Services.

Vancouver can also count on a strong technology sector, registering the highest job growth in 2019 among the top 30 tech markets in North America.

Under Construction 4.8 million sq. ft.

Market Highlights Ą Metro Vancouver office vacancy

increased for the second successive quarter to 5.4%. Ą Downtown vacancy rose by 130 basis points (bps) compared to Q2 2020 (now 4.6%). Ą Vacancy in suburban market settled at 6.3%, 30 bps over Q2 2020. Ą Metro Vancouver remained the tightest office market in Canada.

Market Highlights Ą Real GDP in Q2 fell 11.5%

Looking to the office leasing market, Greater Vancouver’s vacancy rate increased for the second successive quarter, now at 5.4%, an 80-bps increase from Q2 2020. Quarterly absorption settled at -297,112 sq. ft., a level not seen since Q4 2013. In Q3 2020, year-to-date gross leasing recorded at 79.1% of the Q3 2019 year-to-date total, as tenants and prospects were dealing with the aftermath of the crisis, waiting to see how the situation would evolve, and mulling over how to move forward. Despite this quarter’s performance and uncertainties regarding the recovery, Metro Vancouver remains the tightest office market in Canada and is bolstered by its strong market fundamentals at the start of the pandemic.

Downtown Vancouver

Overall vacancy rose by 130 bps from 3.3% in Q2 to 4.6% in Q3 2020. This was observed in all building classes, with Class C seeing the most significant increase (+250 bps), due to booming sublease availability. Overall sublease vacant space, which tripled between Q1 and Q2, was again a factor inflating the vacancy rate, although in a more moderate way. Indeed, Downtown sublease vacancy rose by 32.9% quarterover-quarter. More importantly, direct vacancy grew by 50.2% quarter-overquarter, compared to 7.3% in Q2 over Q1. This could be an early indication of

the mid-term impact of the COVID-19 pandemic, as some groups fold operations, terminate their sublease commitments, or decide not to renew their leases and keep working remotely for the foreseeable future.

As expected, absorption settled at -240,156 sq. ft. in Q3, dropping by 115.5%, or more than double the Q2 negative absorption. On top of growing availability, absorption was further deepened by muted deal activity. Q3 2020 registered 229,079 sq. ft. in gross leasing, less than half of its Q3 2019 level, and 41.5% under its Q2 2020 level.

Downtown still saw the largest lease transaction of the quarter as B2Gold committed to 45,634 sq. ft. in 666 Burrard Street, with occupancy in 2021.

After the initial shock at the beginning of Q2, and despite uncertainty regarding the evolution of the pandemic, activity on the leasing market seemed to pick up over Q3 with tours and listing mandates accelerating, which can be expected to translate in higher deal volumes in the coming months.

Additionally, absorption in the next year will also be sustained by new supply: over 1 million sq. ft. is set to complete in 2021, approximately 50% of which is pre-leased. This includes B2Gold’s space in Vancouver Centre 2, although their future floors are now available for sublease (36,507 sq. ft.), a full year before the building’s completion. Other notable

compared to Q1. July registered a 3% growth in GDP month-over-month. Ą British Columbia’s Consumer Price Index fell 0.2% in August over July 2020 (+0.1% for Canada). Ą Statistics Canada estimates BC’s unemployment rate at 8.4% in September and 9.0% nationally. Ą Bank of Canada maintained its target rate at 0.25% in September. developments on the construction front include the delivery of 155 Water St, fully leased, and 353 Railway St, 100% vacant and contributing to Class A vacancy rate.

Finally, Westbank’s rezoning proposal for the Central Steam project was approved and will be moving to the development permit phase.

Observers might note that this increased availability Downtown marks a shift in market dynamics, changing from a landlord-favorable environment to a more tenant-driven market. This is most apparent in Classes B and C where some private landlords are more inclined to negotiate rather than wait for a potential return to a pre-COVID-19 market.

Similarly, this pandemic has accelerated the end of the rent cycle (net rents reaching a plateau) moving Downtown Vancouver to commence a new rent cycle, as asking net rent started to come off in all classes in Q3 2020. Despite this market shift, trophy rents in Class AAA

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Regional Office Cost of Business Survey — Fall 2020

have mostly been maintained throughout Q2 and Q3.

Burnaby

Burnaby’s vacancy increased slightly by 20 bps, from 7.8% to 8.0%, driven by an increase in sublease space. Class A saw the addition of several vacant sublet availabilities, namely in Broadway Tech Centre (2925 and 2985 Virtual Way) and Glenlyon Business Park (9200 Glenlyon Parkway). Conversely, direct vacancy decreased by 7.0% quarter-overquarter, as Ricoh Canada and Huawei took occupancy of their new spaces (respectively 4621 Canada Way and 4321 Still Creek Drive), as well as several larger spaces close to SkyTrain being leased up.

This could be a sign of occupiers’ renewed interest in suburban markets, especially along rapid transit lines. This could also hint at a potential long-term effect of this public health crisis, where providing offices in the suburbs, with shorter commute times, could be a selling point

to attract talented employees.

Richmond In Q3 2020, Richmond registered a slight increase in vacancy, from 6.4% to 6.7% quarter-over-quarter. Class B was the main driver, with its vacancy rate swelling by 220 bps over Q2 2020 (now at 6.2%), due in large part to new availabilities in 10551 Shellbridge Way. Absorption was slightly negative at -9,623 sq. ft., and gross leasing activity was recorded higher than its Q2 level by 10.2%, both sustained mainly by one deal: Whitewater West Industries subleased 44,078 sq. ft. in 6651 Fraserwood Place, the 2nd largest lease deal of the quarter in Greater Vancouver.

Surrey

Vacancy in Surrey inched up by 30 bps in Q3 2020 to 4.8%, led by Class B and C vacancies, increasing by 40 bps and 240 bps respectively, due to one new sublease in 9801 King George Boulevard. Class A average asking net rent was pushed upwards by availabilities

in newer buildings such as Station Tower and City Centre 2 (respectively 13401 108 Avenue, and 9639 137A Street). On the development front, Century Group’s Holland Parkside new community at 9905 King George Boulevard progressed

in Q3. The new development permit, currently in review with city staff, proposes three residential towers (243 units) and a 10-storey office tower, potentially delivering 190,000 sq. ft. of office space to market in 2024.

Presented by:

On November 4th, BIV and NAIOP Vancouver celebrated the winners of the 2020 NAIOP Commercial Real Estate Awards.

Winning projects were chosen from an excellent pool of thirty-one finalists across eight categories.

• Best Industrial Development Ironworks • Best Industrial Lease BMW Canada Inc. & Goodfood Inc. • Best Investment Transaction Bentall Centre Sponsored by:

• Best Mixed Use Development Strathcona Village • Best Office Development 565 Great Northern Way • Best Office Lease VCII (Kabam)

• Best Tenant Improvement Finning • Best Retail Lease The Independent at Main (Nesters Market)

• Developing Leader Gord Robson