Vancouver’s AAA Office Market Freezes

Vancouver’s downtown office market is experiencing a freeze in new class-AAA office developments, despite strong demand for existing top-tier spaces. A panel of local experts at a recent Commercial Real Estate Development Association (CREDA) event, held at the Fairmont Hotel Vancouver on Sept. 24, highlighted the contrasting fortunes of different office classes. Compared to older class-A, -B, and -C spaces in the downtown core, AAA office space is benefiting from comparatively low vacancy, sufficient demand, and a lack of newly opened space in the market.

Downtown vacancy for AAA space is 11.4%, while class-C space in the downtown area is experiencing vacancy above 23%. Vancouver’s overall office vacancy is 14%.

Limited Options for Large Tenants

Tenants seeking AAA space larger than 50,000 square feet have limited options, with only four available in the entire downtown area. The leasing market has been described as “very quiet” by Bart Corbett, vice chairman at Cushman and Wakefield.

Corbett questions the absence of major tech tenants, stating, “Where is the next big Amazon going to come from? Microsoft? Just not seeing it right now.”

Lack of Urgency in the Market

The market’s lack of urgency is a recurring theme. Irene Au, vice president of leasing at QuadReal Property Group, notes delays in tenant responses, even after prompt follow-ups. Tenants and brokers often take weeks to evaluate options, slowing down decision-making processes. Jeff Lim, vice president at BentallGreenOak, attributes the inactivity in their AAA inventory to its near-full occupancy, a situation he describes as “a good problem.”

Class-B spaces, particularly those between 5,000 and 10,000 square feet, are struggling due to the ongoing flight-to-quality trend. Lim comments, “There’s no urgency,” and compares the current challenges in the class-B market to those of the 1990s.

Suburban Markets Outperform Downtown

Meanwhile, the suburban office markets in the region continue to outperform downtown with a vacancy rate of 9.5%. The panelists said the strongest submarkets are transit-oriented hubs in places like downtown Surrey, Brentwood Town Centre in Burnaby, and certain pockets of East Vancouver and Broadway.

Au explains that suburban market growth is often driven by overall development, including residential and multi-use sites, rather than office buildings alone. Mining and mining services have contributed modestly to recent demand, while professional services firms are showing interest in QuadReal’s office buildings.

The absence of a significant tech tenant comeback is a concern. Corbett highlights the tech sector’s previous role in driving the market from 2014 onwards, noting a lack of inbound business calls from U.S. corporations seeking Vancouver office space in the past 12 to 18 months.

New Developments Unlikely in the Near Future

The prospects for new large-scale office developments are dim. Corbett outlines the requirements: available sites, investor capital, and committed anchor tenants. He identifies only one or two suitable sites and questions owners’ willingness to invest, given the current market conditions.

Speculative development is considered unlikely without a large tenant already committed to waiting several years for completion. Corbett estimates that it could be four to six years or more before any new construction begins.