Vacancy rates have hit an all-time high in Metro Vancouver since 2005 – rising above 9 per cent to 9.3 per cent in second quarter of 2014, up from 8.7 per cent in the first quarter.
Colliers attributes current vacancies to a general lack of demand for office space across larger more traditional industries, as most have already completed their lease deals, combined with increased office inventory in suburbs such as Burnaby and Surrey. Surrey leads the way with an alarming 20.9 per cent office vacancy rate. Richmond is not far behind.
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Currently, most of the demand is being driven by the technology / digital media and creative industries. These companies are searching for a specific type of product that is currently in limited supply in Metro Vancouver – namely, smaller (5,000 square feet or less), unique spaces.
As a result, questions are being asked about what will happen to the over one million square feet of office space being left behind by tenants moving to the buildings under construction.
Maury Dubuque, Managing Director for Colliers Vancouver shares, “The type of tenants currently in the market for office space are looking for a combination of value, unique space and a great location. These tenants tend to prefer office space in heritage buildings found in locations like Gastown, Railtown and Yaletown that offer a distinctive ‘retro’ feel, or, new modern buildings that are located close to amenities and accessible by rapid transit. This is why we’re seeing more traditional types of space, like that within the Downtown Core, suffer from modest demand and rising vacancy.”
With many tenants seeking smaller spaces, Dubuque predicts vacancy will continue to increase as the new supply of office space hits the market; however, vacancy will shift to existing office buildings as new product under construction have already secured a significant amount of pre-leasing.
Dubuque expects that there will be a flight to value for office tenants as the new buildings can offer more efficient and technologically advanced spaces and amenities; as such, he expects that existing Class A and Class B buildings will see the largest increases in vacancy, which could potentially lead to notable rental rate compression.