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Metro Vancouver Office Report Fourth Quarter 2010

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Metro Vancouver Office Report Fourth Quarter 2010

Despite a rocky start, the economy in Canada continues its steady recovery. While the GDP dipped slightly going into the beginning of the quarter, it recovered nicely, increasing in October and November, putting the GDP up 3.0% from this time last year. Employment followed a similar trend, getting off to a slow start, but has recovered well, averaging 4700 new jobs per month. While construction jobs saw a drop off towards the end of the year, the increase in building permits and investment in new construction indicates that even these embattled sectors should recover in the coming months.

While many are looking at the suburbs, those who have made their way downtown chose to stay there in 2010. Of the 900,000 square feet in lease deals Downtown, more than 3/4 of it was in lease renewals. Even with almost a million square feet of vacancy at the end of the year, there are virtually no large (20,000 square feet and greater) spaces available. The only contiguous space available of this size comes with new buildings/supply, which also comes with a high, A or AAA class price tag.

Notable Lease Deals

Metro Vancouver Market Summary

The lack of new supply in the Metro Vancouver area over the last two quarters continues to have an effect on vacancy and occupancy rates all over the Lower Mainland. Vacancy in the Metro Vancouver area has decreased 50 basis points to 8.5%, down from last quarter’s 9.0%. While this lack of space has had a slight raising effect on occupancy rates, promises of new supply and Vancouver’s history of low vacancy have helped keep them in check.

While the last 2 quarters have seen relatively few new developments, investors are still making plans, and the battle to build Vancouver’s next new office tower is heating up. Downtown Office The downtown office market has seen little change in Vacancy or occupancy costs. The core vacancy has gone down only 30 basis points this quarter, sitting at 4.8%, down from 5.1% last quarter. This trend may change soon, however, with a large number of projects in planning slated to provide hundreds of thousands of square feet of space to the usually dry market.

Public Works and Government Services Canada renewed 206,000 square feet at 800 Burrard Street TD renewed 76,000 square feet at 700 West Georgia Street Fluor renewed 55,000 square feet at 1075 West Georgia Street

Suburban Office

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, in part, to the increased activity. The suburbs have seen a steady quarter, accompanied by a slight drop in vacancies as well. Total vacant space dropped to 2,601,000 square feet this quarter from 2,662,000 last quarter. This is the second quarter that the suburbs have seen a drop in vacancy. This trend may continue as there is not enough new supply in the pipeline to meet the current demand. Prospective clients have also started looking outside of the core for office space, realizing how expensive it can be to actually operate downtown. This, combined with the downward trend of vacancy rates have helped bring rates up slightly across the board. The only town to keep up with the demand has been Richmond, where the vacancy rate rose 210 basis points to 19.7%

Notable Lease Deals

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 available, down from 2,866,000 square feet last quarter. This lack of availability in some areas may help increase the rental

• •

Translink has leased 150,000 square feet at the Brewery District Terasen has leased 53,000 square feet at 4370 Still Creek Drive

New Office Construction While there was little new supply in the last (Continued on Page 4)

Historic Municipal Vacancy Rates Q4 2009

Vacancy Rate (%)

Economic Overview

Q1 2010

24 20 16 12 8 4 0

Metro Vancouver Office Report - Fourth Quarter 2010

Q2 2010 Q3 2010 Q4 2010

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Metro Vancouver Office Report Fourth Quarter 2010 Summary Statistics - Fourth 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

687

51,724,690

4,383,155

838,178

8.5

19.9

12.0

Class A

276

29,928,781

2,640,176

608,137

8.8

22.2

12.6

Class B

253

15,227,041

1,076,356

209,193

7.1

19.6

12.2

Class C

157

6,536,868

652,118

20,848

10

16.7

10.6

Downtown Core

156

20,483,624

984,645

248,466

4.8

23.8

14.9

52

12,520,421

407,872

151,972

3.3

29.5

18.2

Class A Class B

53

5,396,424

353,378

89,225

6.5

25.3

14.9

Class C

51

2,566,779

223,395

7,269

8.7

16.8

11.8

Broadway Corridor

81

4,086,965

156,645

41,258

3.8

21.4

14.2

Class A

31

2,147,433

83,970

30,693

3.9

23.5

14.8

Class B

30

1,350,757

57,751

10,565

4.3

21.0

14.7

Class C

20

573,851

14,924

0

2.5

17.8

12.3

Surrey

48

2,822,470

397,065

5,035

14.1

18.8

9.3

Class A

24

2,032,331

361,562

3,919

17.8

20.4

9.0

Class B

15

563,767

26,242

1,116

4.9

16.5

9.1

Class C Richmond

9

218,227

8,145

0

3.6

13.6

11.7

86

5,253,168

1,034,537

197,037

19.7

14.4

8.9

Class A

49

3,450,363

778,590

170,666

22.6

15.8

9.2

Class B

29

1,315,632

146,253

26,371

11.1

14.0

9.4

Class C

10

487,173

109,694

0

22.5

10.1

7.0

North Shore

51

2,324,405

151,705

29,667

6.5

19.2

10.9

Class A

17

893,343

67,324

7,000

7.5

21.2

11.7

Class B

25

1,063,869

68,979

16,206

6.5

18.5

10.9

Class C Burnaby

9

367,193

15,402

6,461

4.2

17.1

8.6

124

9,464,175

1,018,087

239,288

10.8

18.8

11.9

Class A

69

6,608,341

815,384

208,189

12.3

21.6

11.8

Class B

41

2,226,053

170,781

29,288

7.5

16.2

11.9

Class C

14

589,781

31,922

1,811

5.4

21.3

11.7

Yaletown

39

2,159,802

91,556

2,710

4.2

22.8

11.8

Class A

6

595,458

6,827

0

1.1

27.3

13.6

Class B

15

917,499

11,755

2,003

1.3

24.1

11.7

Class C

18

628,263

72,974

707

11.6

20.2

11.3

Metro Vancouver Office Report - Fourth Quarter 2010

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Metro Vancouver Office Report Fourth Quarter 2010

Property address

Notable office lease transactions - Q4 2010* Municipality Tenant

800 Burrard Street The Brewery District TD Tower 1075 West Georgia Street

Vancouver New Westminster Vancouver Vancouer

Property address

Municipality

815 West Hastings Street 620 Royal Avenue 300 Water Street 147 West 16th Street

Vancouver New Westminster Vancouver North Vancouver

two quarters, there are a number of major projects in planning, and some very close to completion. In the first few months of 2011, Delta Group’s The Offices at Hotel Georgia will be complete, bringing 71,500 square feet to the market. This will be followed closely by Bosa Properties Jameson House, bringing 60,000 square feet of space to the market in Q2 of 2011. The Brewery District in New Westminster is also nearly complete with about 150,000 square feet due in April. This overall lack of new supply, coupled with rising rental rates and re-invigorated interest in the office market, many developers are racing to finish the next new office tower, particularly Downtown. Slated for a start in 2012, Bentall Kennedy is proposing a tower with 365,000 square feet of office and a 33,000 square feet retail component at 745 Thurlow. Aquilini Development and Construction has plans for a 22 storey, mixed use building with 223,000 square feet of office space and another 63,000 square feet for retail at 800 Griffiths Way.

Notable office sale transactions - Q4 2010* Price Size (sq ft)

$45,300,000 $12,100,000 $3,850,000 $2,315,00

Size (sq ft)

Public Works and Government Services Canada Translink Head Office & Transit Police TD Bank Financial Group Fluor

Price/ sq ft Purchaser(s)

95,529 47,973 10,000 6,313

$469 $252 $385 $367

815 West Hastings Ltd Sagewood Holdings 0887181 B.C. Ltd. Adamantia Developments Ltd

Looking Ahead • Low and falling vacancy rates are continually pushing lease rates up in areas with high demand, typically smaller quality spaces, many have accepted the reality that finding this sort of space is difficult and are moving into slightly cheaper space, this had a dampening effect on the lease rates overall.

DTZ Barnicke Commercial Team

As more of the projects downtown and elsewhere are approved, rental rates might ease up as many will be waiting for the new space. Many are already making commitments, with places like the Panorama Place and Benchmark Business Centre are already half sold.

Tony Capolongo

The notoriously low vacancy rates downtown might be challenged in the near future as well, as many developers are trying to take advantage of the high rental rates downtown. If projects like the Burrard Gateway at Burrard, Drake and Hornby Streets are approved it will establish precedent for many other large scale projects looking to build towers large enough to change the skyline of the Downtown area.

Steve Schweigert

202,000 145,000 76,000 55,000

Neil McAllister Tom Bakker James Bayley

Conor Finucane Howard Malchy Jason Marriott Don Mussenden

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@dtzvancouver.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

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