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Metro Vancouver Office Report Third Quarter 2010

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Metro Vancouver Office Report Third Quarter 2010 Economic Overview Canada’s economy held strong in the 3rd quarter despite a chaotic currency market and failing US economy. Employment continued upward, and while the GDP fell slightly, current investment and employment trends indicate a strong resurgence going into the 4th quarter. Due to this slow down, the Bank of Canada held the overnight at at 1% and downgraded its estimates for growth. While the banks and investors are cautious, they have continued to keep options for investment financing open which has contributed to this quarters increased investment in construction. Metro Vancouver Market Summary With a drop off in new supply, the vacancy of the Metro Vancouver area decreased 60 base points to 9.0%. All submarkets, with the exception of the Broadway corridor, saw a drop in vacancy in the 3rd quarter. Due to historically low vacancy rates, this drop has not had an effect on current lease rates, but may in the coming months. As the economy continues to recover and more jobs are added, we will continue to see this dropping vacancy. Expect to see rising rates, particularly in the downtown core, going toward the end of the year. The Vancouver area, like much of Canada, has recently seen renewed interest in new construction. Investment in nonresidential building construction rose to 6.4% from last quarter, and is expected to continue increasing into next year.

on projects close to major transportation hubs that have a large volume of smaller, more expensive space. Downtown Office As employment increased, the downtown office market saw a small amount of absorption and a drop in the vacancy rates. While the Downtown core has seen stable rates, this increased market activity may result in slightly elevated lease rates. The core vacancy currently sits at 5.1%, down 50 basis points from 5.6% last quarter. Notable lease deals: • AMC renewed 145,000 square feet at 111 Dunsmuir Street • Borden Ladner Gervais LLP leased 105,000 square feet at 200 Burrard Street • Farris Vaughan renewed 67,000 square feet at 700 West Georgia Street Suburban Office Due to decreased supply in the third quarter, suburban markets saw a drop in vacancy rates, to 13.5% from 15% last quarter. This marks the first quarter that office vacancies have decreased in a year, with 2,662,000 square feet of space, down from 2,866,000 square feet last quarter. This lack of availability in some areas may help increase the rental rates

in certain areas. While rates may have dropped again this quarter in all submarkets, the drop was far less substantial than in previous quarters, due to the increased activity. New Office Construction Several buildings are currently under construction in Metro Vancouver, totalling 1,340,456 square feet. About 32% of this, 429,956 square feet, is in the City of Vancouver, but only 55,000 square feet or 4% is in the downtown core, with Bosa Properties new building, the Jameson House. While development in the downtown core has been slow, the coming years hold a number of promising developments. The GM Place Tower is still in planning, hoping to break ground in late 2010. Bentall Capital’s project at 745 Thurlow is a much anticipated project that should add over 420,000 square feet of office and retail space to the market. Aquilini Investment Group is proposing a 236,000 square foot office tower at 800 Griffiths Way. Recently, Austeville Properties announced plans for a 481,000 square foot office tower on the 400 block of West Georgia Street. In the Suburbs, there are currently 7 projects under construction, totalling 910,500 sq ft. Surrey is home to most of these new projects (4 of the 7 in the suburbs), including the the Panorama Place (Build(Continued on Page 4)

Historic Municipal Vacancy Rates

This quarter has clearly demonstrated the developing dichotomy the Vancouver market has experienced in the past, where vacancies in the suburbs have reached as high as 17-18% and where vacancies in the Downtown core have reached as low as 4-5%. As more tenants move into the higher quality, yet smaller spaces downtown, we expect to see this trend continue. In response, several developers have been working

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Metro Vancouver Office Report Third Quarter 2010 Summary Statistics - Third Quarter 2010 Total buildings

Total area (sq ft )

Total vacant (sq ft)

Total vacancy (%)

Sublet Vacant (sq ft)

Average asking lease rate ($/sq ft)

Average taxes and operating costs ($/sq ft)

Metro Vancouver

685

51,588,374

4,639,080

839,375

9.0

20.0

11.9

Class A

274

29,849,526

2,767,282

601,658

9.3

22.4

12.5

Class B

252

15,237,355

1,170,105

205,229

7.7

19.5

12.1

Class C

158

6,469,493

696,447

32,488

10.8

17.1

10.8

Downtown Core

157

20,489,533

1,053,491

228,749

5.1

23.9

14.8

52

12,516,421

434,621

149,016

3.5

30.6

18.3

Class A Class B

53

5,385,333

354,142

62,303

6.6

25.2

14.9

Class C

52

2,587,779

264,728

17,430

10.2

17.9

12.1

Broadway Corridor

81

4,086,965

199,880

35,499

4.9

21.1

14.7

Class A

31

2,147,433

112,248

24,267

5.2

22.7

15.1

Class B

30

1,350,757

70,204

10,551

5.2

21.3

15.1

Class C

20

588,775

17,428

681

3.0

16.8

12.6

Surrey

48

2,822,470

411,610

7,954

14.6

19.3

9.2

Class A

24

2,032,331

367,712

6,838

18.1

20.7

9.0

Class B

15

563,767

33,609

1,116

6.0

17.2

9.1

Class C Richmond

9

226,372

10,289

0

4.5

13.5

11.8

86

5,184,049

914,658

202,252

17.6

15.0

9.0

Class A

49

3,449,340

696,037

175,881

20.2

16.6

9.3

Class B

28

1,287,536

145,083

26,371

11.3

13.8

9.3

Class C North Shore

9

447,173

73,538

0

16.4

10.7

7.5

51

2,282,147

168,888

48,394

7.4

19.7

10.7

Class A

16

850,109

60,382

9,800

7.1

23.4

11.8

Class B

25

1,064,845

96,773

33,070

9.1

18.7

10.8

Class C

10

367,193

11,733

5,524

3.2

17.0

9.1

Burnaby

126

9,652,654

1,167,537

217,162

12.1

18.9

11.4

Class A

69

6,606,774

901,466

184,765

13.6

21.5

11.9

Class B

42

2,435,342

187,097

30,586

7.7

17.1

11.5

Class C

15

610,538

78,974

1,811

12.9

16.4

9.0

Yaletown

39

2,151,391

111,055

6,282

5.2

23.1

11.9

Class A

6

594,045

3,042

0

0.5

28.0

14.2

Class B

15

929,254

22,597

5,575

2.4

24.3

11.7

Class C

18

628,092

85,416

707

13.6

20.9

11.5

Metro Vancouver Office Report - Third Quarter 2010

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Metro Vancouver Office Report Third Quarter 2010

Property address

Notable office lease transactions - Q3 2010* Municipality Tenant

111 Dunsmuir Street 200 Burrard Street 700 West Georgia 13777 Commerce Parkway

Vancouver Vancouver Vancouver Richmond

Property address

Municipality

1133-1155 Melville Street 157-199 West Hastings Street 541-555 Howe Street 1300 Richards Street 5731 No. 3 Road 269-271 East Pender Street

Vancouver Vancouver Vancouver Vancouver Richmond Vancouver

ing H), the Benchmark Business Centre II, the Dean Business Centre II (which should be available early Q4) and the Grandview Business Centre. New Westminster, however, has the Brewery District under construction, a project slated for completion in mid 2011 that would bring 150,000 square feet of office space to the market. There is some office space under construction in Langley as well, with about 68,000 square feet in the Langley 200 Business Centre. There are also a number of projects that are still in planning or pre-leasing in the Metro Vancouver area. Most of this is in the suburbs, including Metrotower III, with 400,000 square feet expected in Burnaby, the Canada Line Office Buildings with nearly 200,000 square feet and the Gateway Business Park in Surrey with over 500,000 square feet coming to the Market. The City of Vancouver will see some new supply as well with projects like the Containers on Terminal, with a total of 225,000 square feet, and the GM Place Tower, with 162,000 square feet.

Notable office sale transactions - Q3 2010* Price Size (sq ft)

$27,650,000 $15,531,436 $8,425,000 $6,150,000 $3,494,900 $1,368,000

99,100 50,000 21,075 13,264 6,265 9,150

Looking Ahead •

Size (sq ft)

AMC Borden Ladner Gervais LLP Farris, Vaughan, Wills & Murphy LLP Stewart Olsen Dominion Construction

As summer comes to a close, and people return to work, we expect to see increased activity in the Downtown market. Decreasing supply and increased demand will help increase rental rates, particularly in areas with high quality office space. Cautious prospecting tenants are still fuelling a demand for smaller, high quality office space, particularly strata properties. We expect to see this trend continue, matched by a rise in lease rates in areas like the Downtown Core and Yaletown. This may force current tenants to move to more commodity space if they cannot afford the increased rates when their leases expire. Vacancy in the suburbs is expected to plateau going into next year as most construction is nearing completion. While we expect to see a increase in vacancy in the fourth quarter, we do not expect to see much new supply in the new year, particularly in the suburban markets as the demand catches

145,000 105,000 67,000 14,085

Price/ sq ft Purchaser(s)

$279 $311 $400 $464 $558 $150

Oxford Properties Group Flack Hastings Properties Ltd. 198198 Enterprises Ltd. Wall Financial Corp. Postmedia Network Inc. 0887428 B.C. Ltd.

DTZ Barnicke Commercial Team Neil McAllister Tom Bakker James Bayley Tony Capolongo Conor Finucane Howard Malchy Jason Marriott Don Mussenden Steve Schweigert Rand Thomson Chris Walters Stephen Webber

Definitions Absorption: Refers to growth or net change in occupied space over time. Inducements: A form of monetary enticement given by a landlord to a tenant. New Supply: New space entering the market through new construction. Under Construction: Projects that are currently being built but are not yet completed. Vacancy Rate: The current amount of vacant building area compared to the total amount of existing inventory.

For more information please contact: James Fraser, Director of Research james.fraser@dtzbarnicke.com (604) 630 3405

DTZ Barnicke Vancouver Limited

800 - 475 West Georgia Street, Vancouver, B.C. V6B 4M9 Tel: (604) 684 7117 Fax: (604) 684 1017

*Properties over 8,000 sq ft only If you would like to receive this report via email, please contact us.

**Data sourced from RealNet Canada Inc. www.realnet.ca

VANCOUVER • Victoria • Nanaimo • Kelowna • Toronto • Calgary • Edmonton • Winnipeg • Montreal • Mississauga • Burlington • Halifax • Kingston • London • Markham • Niagara • Ottawa • Regina • Waterloo We have an extended team of over 10,000 professionals operating through our global network across 43 countries dedicated to serving our clients’ real estate needs. All information has been obtained from sources considered to be accurate but is not guaranteed and is subject to conditions at the time of any transaction taking place. Properties are submitted subject to prior sale or lease, withdrawal or changes without notice.

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