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Vancouver office market report q3 2012
Vancouver office market report q3 2012
Vancouver office market report q3 2012
Vancouver office market report q3 2012
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Vancouver office market report q3 2012


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  • 1. Q3 2012 | OFFICE REPORTCOLLIERS INTERNATIONAL | MARKET REPORTMETRO VANCOUVERBRITISH COLUMBIA Canadian Market Overview BRITISH Canadian economic performance remains in growth mode, albeit moderate in the East and COLUMBIA stronger in the West. The divide between East and West can be attributed to strong commodity prices driving the West and the lack of a similar catalyst in the East. Manufacturing in the East is weighed down by slow growth in the U.S.; however, more positively is the return of the auto sector to near pre-recession levels. The outlook for commercial real estate is stable, with the exception of a few higher-growth centers in the West. Employment growth will sustain the office market and growth in retail sales, which combined with new U.S. retailers, will underpin demand for retail and Vancouver distribution facilities. Manageable new supply of both office and industrial property should avert supply-driven vacancy challenges. Overall, commercial property looks well-positioned to close out a solid year in 2012 and continue on the same path through 2013.Nanaimo Kelowna Victoria Metro Vancouver Market Overview Surrey As expected, office leasing in Metro Vancouver remained flat, with only modest activity, characteristic of the summer months. Overall vacancy rates did not change from last quarter, holding at 7.6 percent despite a slight increase in the availability rate from 8.6 percent in the second quarter to 8.8 percent in the third quarter. The relative inactivity was reflected by a noticeable decline in the absorption of Suburban Class A office space, negative 9,955 square feet, down from 121,983 square feet in the previous quarter. It should be noted that more thanBC MARKET: Colliers has five offices in BritishColumbia: Vancouver, Kelowna, Surrey, Nanaimo one million square feet of new Class A office space is currently under construction in theand Victoria. suburban market. Tenant renewals accounted for the majority of the leasing activity in Metro Vancouver, with many tenants choosing the lower risk option of renewing over relocation given tight vacancies, uncertainty in the global economic condition, and the upcoming Provincial election.MARKET INDICATORS 2012 2012 Metro Vancouver Historical Performance Q2 Q3 500 25 400 Vacancy (%) / Net Asking Rent ($) 300 20VACANCY 200 Thousands (SF) 100 15 0NET ABSORPTION -100 10 -200 -300 5SALES PRICE ($/SF) -400 -500 0RENTAL RATE Net Absorption (SF) Current Qtr Weighted Avg Asking Net Rent Vacancy Rate In Q1 of each year, Colliers analyzes various aspects of its inventory and adjusts it accordingly in order to adhere to North American standards. In Q3 2010, Colliers began calculating its rental rates using a weighted average. As a result, Q3 rental rates appeared to jump, but in reality remained
  • 2. MARKET REPORT | Q3 2012 | OFFICE | METRO VANCOUVER Downtown THE MARKET INVESTMENT Downtown Vancouver office space, with Investment activity was slow in the third quarter proximity to endless amenities and transit, of 2012, with only two notable transactions, continues to be in high demand. The both in Class C buildings. Most notably, 23 West downside, of course, is a profound lack of Pender Street (also known as 425 Carrall) was supply, with vacancy at 3.5 percent, making sold by MacDonald Development Corporation it very difficult for tenants to shift or absorb to Anthem Properties, likely driven by the space in this competitive submarket. The development opportunity on the property. low transaction velocity has also served The 119,334 square foot building was sold for as a de facto cap on rental rate increases. approximately $42 million. Similarly, the King Asking rental rates among Class AAA and George Development Building at 905 West A buildings slightly increased, while Class B Pender sold at the end of the second quarter to and C buildings experienced slight declines. a private pension fund. The 40,790 square foot Class C building was sold for approximately TRENDS $20.3 million, or $498 per square foot. The major trend in the third quarter was tenant renewals, largely due to tenants’ FORECAST Scotia Tower inability to shift space in the crowded Aside from HSBC’s move to Broadway 650 West Georgia Street, Vancouver downtown market. Given the lack of Tech Centre from multiple downtown available supply, and economic and political locations, downtown Vancouver will not “The low transaction velocity uncertainty, tenants are expected to see a large change in vacancy rates for has served as a de facto cap continue looking to renew existing leases, the next few quarters, nor should tenants on rental rate increases.” rather than taking the risk of a change in expect significant relief until the buildings office location. The most notable renewal in under construction open their doors. Rental this quarter was Harper Grey LLP, which rates among the A and AAA Classes will retained 36,948 square feet over three also remain relatively constant until the floors at Scotia Tower. introduction of new supply in late 2014. Downtown Historical Performance 300 30 200 25 Vacancy (%) / Net Asking Rent ($) 100 20 Thousands (SF) 0 15 -100 10 -200 5 -300 -400 0 Net Absorption (SF) Current Qtr Weighted Avg Asking Net Rent Vacancy Rate In Q1 of each year, Colliers analyzes various aspects of its inventory and adjusts it accordingly in order to adhere to North American standards. In Q3 2010, Colliers began calculating its rental rates using a weighted average. As a result, Q3 rental rates appeared to jump, but in reality remained stable.P. 2 | COLLIERS INTERNATIONAL
  • 3. MARKET REPORT | Q3 2012 | OFFICE | METRO VANCOUVERSuburbsTHE MARKET INVESTMENTThe suburban market as a whole changed Burnaby was the most notable investmentonly marginally from the second quarter, market in the third quarter. The largestwith 26,199 square feet of absorption over acquisitions were by Bosa Developments,last quarter’s negative 38,124 square feet. which purchased two properties in Burnaby:Burnaby was moderately active despite a 4488 Halifax Street and Sperling Plaza Inegligible decrease in its vacancy rate from the and II (6400 and 6450 Roberts Street).previous quarter, with most activity consisting 4488 Halifax is an office development siteof tenant renewals. The 16.11 percent vacancy with 18,299 square feet of land, while therate seen in Surrey can mainly be attributed 132,000 square foot Sperling Plaza wasto an influx of new supply; however, tenant sold by a Bentall Kennedy-managed fund forinterest remains high. approximately $30.3 million.TRENDS FORECASTThe suburban market mirrored the second The fourth quarter will see increased activityquarter, with most of the activity attributed in two submarkets. Surrey’s vacancy rateto tenant renewals. Transit continues to be a should increase in the short term with themajor priority in suburban tenants’ location introduction of new supply. Rental rates in Sperling Plaza Ipreferences, with a majority of new supply the area may decrease slightly as 73,000 6400 Roberts Street, Burnabyproposed for sites near a major transit hub. square feet of sublease space in StationSurrey is seeing a continued surge of new Tower (formerly occupied by TransLink) “Transit continues to be asupply, with 365,000 square feet to be enters the market. Additionally, HSBC major priority in suburbandelivered over the next six quarters. The moves into Broadway Tech Centre, and tenants’ location preferences,new supply is mainly driven by population The Provincial Health Authority relocates with a majority of new supplygrowth in the area, and a demand for to 1795 Willingdon Avenue, which will lowersuperior quality Class A office space. vacancy in the Burnaby market to a more proposed for sites near a1 Includes 104 Avenue Centre, which has 259,474 SF of vacant balanced level. major transit hub.”Class A office space on the market since 2005. Surrey’s vacancyrate without the inclusion of this space is 9.8 percent. Suburban Historical Performance 300 25 250 200 20 Vacancy (%) / Net Asking Rent ($) 150 100 Thousands (SF) 15 50 0 10 -50 -100 -150 5 -200 -250 0 Net Absorption (SF) Current Qtr Weighted Avg Asking Net Rent Vacancy Rate In Q1 of each year, Colliers analyzes various aspects of its inventory and adjusts it accordingly in order to adhere to North American standards. In Q3 2010, Colliers began calculating its rental rates using a weighted average. As a result, Q3 rental rates appeared to jump, but in reality remained stable. COLLIERS INTERNATIONAL | P. 3
  • 4. MARKET REPORT | Q3 2012 | OFFICE | METRO VANCOUVER 522 offices in 62 countries on six continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 $1.8 billion in annual revenue 1.25 million square feet under management 12,300 professionalsLocal Spotlight Story CONTACT INFORMATIONHOW WILL THE FUTURE OF WORK AFFECT LANDLORDS IN VANCOUVER? Office Team:It is no secret that businesses are rapidly changing the way they use space in office Blake Adam Jeff Kincaid-Smith*environments. With the anticipation of new premium office space in the Vancouver Kayvon Besharat* Brian MacKenziemarket, it may be opportune for landlords and developers to take a closer look at the Matthew Carlson Derek Mayfuture of workspace design, and how it will impact existing buildings over the next 10, 20, Robert Chasmar* Stephen Moscovichand 30 years. Graham Davidson Colin Scarlett* Marco DiPaolo* Jason TeahenTenant layouts are changing, becoming more open and less segregated. Open and Maury Dubuque David Thistle*flexible workspaces are replacing cubicles, collaborative meeting rooms replacing private John Freyvogel Ryan Woodoffices, and average square foot occupied per person is rapidly shrinking. In fact, Corenet Dan Jordanreports that the average square foot of office space per person within its membershipdecreased from 225 square feet in 2010 to 176 square feet in 2012. Furthermore, the Kirk Kuestercompany predicts that the average square footage per person will shrink to 100 square Managing Director | Vancouver Brokeragefeet per person by 2017. DIRECT: +1 604 661 0814 kirk.kuester@colliers.comMajor drivers behind the change in workspace design include rising cost of real estate,generation Y’s collaborative work habits, the growth of technology and ability to work Hari Minhasremotely, and the effect of educational institutions shaping the way we work. Certain Director of Marketing and Research |companies in Vancouver are already taking advantage of these innovations in workspace Vancouver Brokeragedesign: TELUS has a progressive mobile employee strategy, allowing space to be used in DIRECT: +1 604 692 1408new ways that increase productivity and overall employee effectiveness. hari.minhas@colliers.comAlthough Vancouver does not have the volume of head offices like that of Toronto or Calgary, Matt Dixonit does face challenges in premium office supply. Landlords and developers that have a firm Research Associate | Officegrasp of the rapidly evolving future of work will not only be the most competitive in the DIRECT: +1 604 692 1476market, but will attract and retain the highest-quality tenants at the highest rental rates. matt.dixon@colliers.comVancouver Downtown Office200 Granville Street, 19th FloorVancouver, BC V6C 2R6MAIN +1 604 681 4111 FAX +1 604 661 0849This report has been prepared by Colliers International for advertising and general information only. Colliers International makes noguarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties ofcontent, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers Internationalexcludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss anddamages arising there from. This publication is the copyrighted property of Colliers International and/ or its licensor(s). © 2012. All rights reserved.*Personal Real Estate Corporation. PO11384 Accelerating