Downtown Vancouver office vacancy remains low

Vancouver’s downtown office market remains tight, despite a rise in subleasing activity, local NAIOP chapter members heard Thursday.
“There aren’t a lot of large downtown office spaces,” said Avison Young principal Fergus Cameron.
“A lot of the space downtown is of a smaller size, and a lot of the space downtown comes from sublease space,” said Cameron. “The head lease market is still only 31/2%vacant.”
Cameron was speaking on a panel during NAIOP Vancouver’s monthly breakfast meeting. The panel included brokers Darrell Hurst, also of Avison Young, Mark Chambers of Cushman & Wakefield Ltd., and Rob Chasmar of Colliers International Inc. The four brokers analyzed Metro Vancouver’s sub-markets and offered brief forecasts up to 2012.
Their predictions on when average office vacancy would fall and average rents would rise ranged from the second quarter of 2010 to the first quarter of 2011.
Taking head lease and sublease space into account, the downtown market’s overall vacancy rate is 5%.
Cameron said some space is available but tenants want to preserve capital after going through tough times related to the global financial meltdown. Sublease opportunities have increased in recent months, and many sub-landlords have offered inducements as they attempt to reduce their rent obligations.
But, with many head leases coming up for renewal after the 2010 Winter Olympics, few are expected to bite on sublease opportunities.
“We’re going to see the rents and the inducements staying fairly flat in the next six months,” said Cameron.
Although subleases offer short-term rent reductions, sub-landlords may end up paying more over the long term than a tenant in a lease rollover situation, he said.
Downtown Vancouver is not slated to get any new office supply this year, and will have negative absorption of 500,000 square feet (sf). Limited new supply is expected to result in positive absorption of 100,000 sf in 2010 and 200,000 sf and 300,000 sf in 2011 and 2012, respectively.
The largest available office space in the core is resort developer Intrawest’s 96,000 sf in the Waterfront Centre, which is being offered on sublease. The next largest space is Nexon’s 37,000-sf former video game studio in Yaletown.
Upcoming vacancy of 30,000 sf or more includes the 71,500-sf of rentable space in the Hotel Georgia redevelopment, which includes office, retail and a boutique hotel as well as condos. Office space, now being marketed by Avison Young, is available for both lease and sale under a strata ownership arrangement.
Hotel Georgia , located at the northwest corner of Georgia and Howe streets, will be available for occupancy in mid-to-late 2010. Meanwhile, famed architect Norman Foster’s Jameson House at 838 West Hastings has 30,000 sf of office space available next year, while an existing building at 885 Dunsmuir has 63,000 sf and the Grosvenor building near Georgia and Burrard has 43,000 sf.
Panel moderator Tony Astles, executive vice-president of real estate services for Bentall, said the Vancouver office market, traditionally subject to considerable institutional investment, remains quite strong compared to the rest of North America.
“All in all, things are okay . . . Thank God we live in Vancouver,” concluded Astles.