Metro Vancouver Office Market Report - Avison Young

Metro Vancouver

Office Market Report Year-End 2015 Vacancy rate December 31, 2015 10% Metro Vancouver market remains balanced Vacancy rate June 30, 2015 10.3% as new supply supports the most positive annual absorption recorded in a decade

S ABSORPTION (DEMAND)

VACANCY (SUPPLY)

ignificant additions to Downtown Vancouver’s inventory of office towers contributed to regional vacancy rising to 10% at year-end 2015 from 9.4% at year-end 2014, but the development boom also helped accommodate more than 1.3 million square feet (msf ) of annual absorption – the most recorded in Metro Vancouver in a decade. More than 1.7 msf of new office space was delivered in Downtown Vancouver in 2015, and Downtown absorption of more than 1.1 msf significantly impacted the region’s annual absorption. While regional vacancy reached 10.3% at midyear 2015 (due in part to the delivery of new Downtown office buildings in the first half of 2015), vacancy tightened in the second half despite the addition of new buildings in the Downtown core as well as the suburbs.

RENTAL RATES

Metro Vancouver - Vacancy and Absorption Trends 12.0%

1,600,000

10.0%

Vacancy Rate

9.4% 8.0% 7.4% 6.0%

10%

10.5%

1,200,000 1,000,000

7.8%

800,000

7% 640,019

600,000

532,275 397,843

4.0%

1,400,000

92,870

400,000 200,000 0

2.0%

Absorption Rate (sf)

1,334,604

-200,000

-158,905 0.0%

-400,000 2011

2012

2013

Vacancy

2014

2015

2016F

Absorption

12-month projection based on 10-year average absorption and known net absorption in new inventory

Most suburban submarkets in Metro Vancouver recorded positive annual absorption in 2015, led by the ongoing recovery of Richmond’s office submarket, while Vancouver-Broadway and Yaletown were the only submarkets to register negative annual absorption. The Vancouver-Broadway and Yaletown submarkets are both located within Vancouver city limits. Volatility in the Yaletown submarket in 2015 was tied directly to tenants relocating to occupy larger Downtown premises. In the Vancouver-Broadway submarket, a number of tenants chose to search for office space efficiencies in an attempt to reduce costs – which subsequently led some to downsize or relocate, resulting in slight negative annual absorption. Surrey registered the most positive annual absorption since 2010. Burnaby, New Westminster and the North Shore registered minimal positive absorption in 2015. The Burnaby and Surrey submarkets also recorded elevated vacancy rates. continued on back page

Metro Vancouver Office Vacancy Summary (Year-End 2015) DISTRICT

INVENTORY (SF)

HEAD LEASE VACANCY (SF)

SUBLEASE VACANCY (SF)

TOTAL VACANCY (SF)

VACANCY RATE (%)

12-MONTH ABSORPTION (SF)

Downtown

22,825,576

1,878,942

249,851

2,128,793

9.3%

1,101,041

Yaletown

2,029,244

82,797

0

82,797

4.1%

-20,091

Broadway

5,849,095

256,718

6,366

263,084

4.5%

-38,637

Burnaby

9,100,255

1,055,445

120,044

1,175,489

12.9%

32,637

Richmond

4,215,800

443,061

61,359

504,420

12%

186,883

Surrey

2,851,607

471,912

28,178

500,090

17.5%

36,751

New Westminster

1,688,572

253,682

0

253,682

15%

29,444

North Shore

1,372,098

82,276

18,304

89,028

7.3%

6,576

TOTAL

49,932,247

4,524,833

484,102

5,008,935

10%

1,334,604

Partnership.Performance.

I 1

Downtown

Positive annual absorption highest since 2005 accounting for 11.7% of overall vacancy, down from 12.9% a year earlier and significantly off the 19.9% recorded at year-end 2013. Much of the potential sublease space vacated by tenants moving into the new towers was backfilled and a significant increase in sublease space did not materialize. The Downtown market remains fairly balanced overall and while there was an increased number of large-block vacancies or availabilities, they remain limited in absolute numbers. With the space availability factor (SAF) at its lowest since mid-year 2012, vacancy is less likely to increase in the short term.

Absorption Trends Positive annual absorption of more than 1.1 msf in 2015 marked the most annual absorption recorded since year-end 2005, which had marked the end of a four-year run during which time Downtown absorption was at least 2 msf annually. Positive absorption in 2015 also marked a reversal in a four-year slide towards negative absorption, starting in 2011 when absorption reached 373,425 sf before dropping to just 7,753 sf of positive absorption in 2012 and then registering negative annual absorption in 2013 and 2014. Almost three-quarters of positive absorption in 2015 occurred within class AAA properties. Positive class A absorption of 172,762 sf in 2015 marked the first positive annual absorption recorded in class A Downtown properties since 2012.

Bentall Kennedy continues to work on the development permit application for 1090 West Pender, a new 415,920-sf office tower.

Vacancy with Space Availability Factor (SAF) and Absorption:

12.0%

Vacancy Rate / SAF

1,200,000

1,101,041 2.8%

10.0%

1,000,000 2.4%

3.4%

800,000


14.0%

Recent Lease Deals – Year-End 2015 TENANT

BUILDING

SF

PwC (renewal)

PwC Place

110,000

Absolute Software (renewal & expansion)

Bentall 4

46,000

Rocky Mountaineer

980 Howe Street

36,400

Kabam Inc. (sublease & head lease)

745 Thurlow Street

32,000

Provincial Health Services Authority (renewal)

1380 Burrard Street

31,000

Boughton Law Corp. (renewal)

Bentall 3

30,000

The Profile

375 Water Street

30,000

Impark (renewal)

The Station

25,000

Impark (renewal)

515 West Hastings Street

23,000

Copeman Healthcare Centre

808 Nelson Street

20,400

Stemcell Technologies Inc.

Pender Place II

18,900

Hostway (renewal)

Bentall 5

17,500

Lululemon Athletica (expansion)

1380 Burrard Street

17,300

Downtown vacancy peaked at 9.8% at mid-year 2015 before tightening to 9.3% at year-end 2015, which was up from 6.8% a year earlier. Despite the delivery of more than 1.7 msf of new office space in 2015, vacancy had already started to tighten by the end of the year as tenants occupied the new inventory. Despite substantial absorption in class AAA assets, vacancy more than doubled to 10.5% from 5% a year earlier primarily due to the delivery of new inventory that contained limited vacancy. Class A vacancy also climbed to 10.8% from 5.5% year-over-year as the flight to quality began to impact existing inventory. Class B and C vacancy declined year-over-year, dropping to 7.5% and 7.9% at year-end 2015 from 8.3% and 9.6%, respectively. Vacancy is expected to remain stable – even decrease incrementally – through 2016 as minimal new inventory is scheduled to be delivered and significant occupancies still remain in the new towers.

Pacific North West LNG (expansion)

Park Place

17,000

GE Capital

1055 Dunsmuir Street

16,800

College of Massage Therapists of BC

1050 West Pender Street

15,700

Securiguard Services

1445 West Georgia Street

15,300

FullyManaged/ITG Software


14,580

AXIM

Royal Centre

14,200

Western Forest Products

Royal Centre

14,200

IIROC (renewal)

Royal Centre

13,800

CanWell Building Materials Group (sublease)

Royal Centre

13,800

Wavefront Wireless (renewal)

Guinness Tower

12,400

Simon Fraser University

Harbour Centre

12,000

JH Investments Inc.

745 Thurlow Street

12,000

Agricultural Bank of China

Telus Garden

12,000

Even while tenants continue to search for space efficiencies to reduce occupancy costs, there was solid deal activity with a good cross-section of new leases, expansions, renewals and new tenants in the Downtown market. Available sublease space continues to decrease with sublease vacancy

Sandstorm Gold (renewal)

Commerce Place

11,500

Pacific Future Energy

701 West Georgia Street

10,000

Accenture

Telus Garden

10,000

Esri Canada (renewal)


10,000

8.0% 6.0% 4.0%

9.3%

3.4% 373,425 2.6%

3.3%

9.2%

400,000

6.8%

200,000

5.7% 7,753 3.9%

600,000

134,990

3.9%

2.0%

0 -200,000

-270,560

0.0% 2011

 Vacancy

2012

2013

Absorption

-309,835 2014

2015

-400,000 2016F

 SAF* Space Availability Factor

12-month projection based on 10-year average absorption and known net absorption in new inventory, and 10-year average SAF

Vacancy Trends

2 I


Downtown

Vacancy elevated but market remains balanced

Space Availability Factor (SAF)

Developer

SAF refers to head lease or sublease space that is being marketed but is not physically vacant, and new supply that is nearing completion and available for lease. The space availability factor, or SAF, slipped to 2.8% (650,435 sf ) at year-end 2015, its lowest point since mid-year 2012 when the indicator reached 2.6% (511,283 sf ). Hence, the actual amount of space currently being marketed (occupied and vacant) in the Downtown core is 12.1% or approximately 2.8 msf.

Westbank/Telus

New Construction The podium at Telus Garden, which features 48,050 sf of office space, is planned to be completed in the first quarter of 2016 and remains available for lease. Serracan Properties’ FiveTen Seymour development is 98% preleased by the Adler School of Professional Psychology, OnlineShoes.com, Hardy Capital and Serracan Properties, and is anticipated to be finished by the third quarter of 2016. Century Group’s Ormidale Block redevelopment is under construction and is scheduled for completion by the end of 2016. No tenants have been announced. The largest office tower under construction in the Downtown core, the 31-storey, 372,000-sf Exchange building being developed by Credit Suisse AG and SwissReal Group Canada, is 10% preleased and scheduled for completion in the second quarter of 2017. National Bank Financial preleased 45,000 sf of office and retail space. Construction of Aquilini Development’s east tower at 777 Pat Quinn Way is scheduled to break ground in the summer of 2016 and anticipated to be complete in the fourth quarter of 2018. Construction on the long-planned Burrard Place development is scheduled to start in the second quarter of 2016. Development proposals for Carrera Management’s site at 320 Granville and Cadillac Fairview’s proposed Waterfront Tower at 555 West Cordova remain in process as the City of Vancouver decides how to proceed with the associated development permit and rezoning applications in relation to its Central Waterfront Hub Framework, which city council had adopted in 2009 to provide development guidelines in the area. Bentall Kennedy continues to work through the development permit application for 1090 West Pender. Oxford Properties is reviewing its overall development plan for 1133 Melville after the city’s urban design panel did not support the proposed 32-storey, 500,000-sf office building. GWL Realty Advisors’ proposal for Vancouver Centre II at 753 Seymour and Bosa Properties’ proposal for a 26-storey, mixed-use building at 1575 West Georgia and 620 Cardero Street remain in the rezoning process. Low Tide Properties is working through its development permit application for a new sevenstorey office building at 155 Water Street, which requires the retention of the building facades of 151 and 157 Water Street among other conditions. Boffo Developments is proposing a 26-storey, mixed-use building at 225 Smithe Street that will include office space on three floors.

Building

SF

501 Robson Street 48,050 (Telus Garden podium) Seymour, Serracan Properties FiveTen 68,000 (office) 510 Seymour Street Ormidale Block Century Group 151 West Hastings Street 23,600 (office) Credit Suisse AG/ The Exchange, SwissReal Group 362,000 (office) 475 Howe Street Canada Jim Pattison Developments/ Reliance Properties Aquilini Development and Construction

Prelease Prelease Completion SF % 0

0%

Q1 2016

66,600

98%

Q3 2016

0

0%

Q4 2016

35,750

10%

Q2 2017

Burrard Place, 1290 Burrard Street (mixed use)

230,000 (office including tower 0 & podium)

0%

Q4 2018 (phase 1)

777 Pat Quinn Way (residential/office)

69,300 (office) (east tower)

0

0%

Q4 2018

Bosa Properties

1575-1577 West Georgia Street & 620 Cardero Street

45,346 (office)

-

-

Proposed

Carrera Management Corp.

320 Granville Street

350,000

-

-

Proposed

Morguard

601 West Hastings Street

212,500 (office)

-

-

Proposed

Centre II, GWL Realty Advisors Vancouver 753 Seymour Street

368,115

-

-

Proposed

Bentall Kennedy


415,920 (office)

-

-

Proposed

Oxford Properties

1133 Melville Street

TBD

-

-

Proposed

Cadillac Fairview

Waterfront Tower, 555 West Cordova Street

TBD

-

-

Proposed

Westbank Projects

720 Beatty Street

300,000 to 350,000 (office) -

-

Proposed

Low Tide Properties

155 Water Street

69,000 (office)

-

-

Proposed

Boffo Developments

225 Smithe Street

28,110 (office)

-

-

Proposed

TBD

-

-

Proposed

Canadian Metropolitan 750 Pacific Boulevard Properties Corp.

Market Forecast Rental rates remained stable in 2015 due to landlords offering significant leasing inducements, but downward pressure on rates is likely to increase in 2016. While a diminishing supply of high quality sublease space improved landlords’ negotiating leverage, a greater number of large-block lease opportunities in the market will allow larger tenants to negotiate with landlords from a position of strength. Smaller tenants may discover landlords to be less flexible on rental rates when it comes to the limited supply of high quality view premises, but more open to negotiation on mid- and lower-tower options. The leasing market is expected to remain stable in 2016 with average deal velocity and incremental decreases in vacancy and availability rates until the next wave of new inventory nears delivery. Any recovery in the mining, energy and commodities markets will increase demand, likely decreasing vacancy and availability rates. The tenant mix in the Downtown office market will continue to diversify in 2016 and remain balanced as landlords achieve reasonable rental rates and tenants have sufficient space alternatives to accommodate their needs.

CLASS

Inventory

Head Lease Vacancy (sf)

Sublease Vacancy (sf)

Total Vacancy (sf)

Total Vacancy (%)

12-month absorption (sf)

SAF (sf)

SAF (%)

Net Rental Rate Range (psf)

Gross Occupancy Cost (psf)

AAA

4,728,576

398,772

96,413

495,185

10.5%

818,295

128,823

2.7%

$26 - $44

$46 - $69

A

7,983,952

818,475

47,280

865,755

10.8%

172,762

359,662

4.5%

$20 - $37

$39 - $61

B

6,829,205

412,296

97,476

509,772

7.5%

54,244

120,959

1.8%

$18 - $31

$35 - $52

C

3,283,843

249,399

8,682

258,081

7.9%

55,740

40,991

1.2%

$14 - $25

$26 - $41

Total

22,825,576

1,878,942

249,851

2,128,793

9.3%

1,101,041

650,435

2.8%

-

-


I 3

4 I

48,050

No tenants at this time

Office sf

Tenants

4,250 sf

4,250 sf

25,500 sf

30,000 sf

98%

68,000

10

Serracan Properties

Q3 2016 FiveTen Seymour 510 Seymour St.

0%


23,600

5

Century Group

Q4 2016 Ormidale Block 151 West Hastings St.

35,750 sf

10%

362,000

0%


129,100 + 100,000

0%


69,300

East Tower, Floors 5-13

13 floors + 7-storey podium

31

Aquilini Development & Construction

Reliance/Pattison

Credit Suisse/ SwissReal Group

Q4 2018 East Tower 777 Pat Quinn Way

Q4 2018 Burrard Place 1290 Burrard St.

Q2 2017 The Exchange 475 Howe St.

© 2016 Avison Young. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C.) Inc.; DBA, Avison Young.

0%

4

Storeys

Occupancy rates

Westbank/Telus

Q1 2016 501 Robson St. (Telus Garden podium)

Developer

Tenants (leased) Residential

U P DAT E D J U LY 2016

Downtown Development Timeline

Downtown Development Timeline


HOWE ST

ROYAL BANK BUILDING

FUTURE 320 GRANVILLE

Rezoning application was filed July 16, 2014. UDP supported building design on October 22, 2014. The staff report on the rezoning application was received by council on February 2, 2016 and was referred to public hearing. The development features ground floor commercial space and three floors of office space in podium.

Storeys / Office area 26 / 45,346 sf

PRICEWATERHOUSE COOPER BUILDING


The development was supported by the UDP on August 12, 2015 and the rezoning application was subsequently approved directly by the director of planning with numerous signficant conditions that need to be met for the project to receive its development permit. The historic facades of 151 and 157 Water Street must be maintained and the seven-storey mixed-use building includes restaurant/retail on the ground floor and office space on floors 2 – 7.

Storeys / Office area 26 / 28,110 sf Rezoning application was filed May 5, 2015 and the development received the support of the UDP on July 29, 2015. The rezoning application was heard by council on December 15, 2015 and the application has been moved to a public hearing in early 2016. The building’s podim will have ground-floor retail and three floors of office space totalling 28,110 sf.

Picture not available

155 Water St. Developed by Low Tide Properties

WATERFRONT STATION

UDP supported the design in September 2013. A community open house was held in October 2013. As of June 30, 2015, the developer was still working ELEVATIONS on the rezoningCONTEXT application and the city was awaiting revisions to the rezoning application. The revisions were subsequently received and accepted by the City and the public hearing for the rezoning application will likely be scheduled for fall 2015.


GRANT THORNTON PLACE (333 SEYMOUR)

UDP supported the design in February 2014. A public hearing related to its rezoning application was set for February 24, 2015, and the application was approved by the City. As of December 31, 2015, the developer was working through development permit application requirements and anticipates that it will take six months to complete the process.


1090 W. Pender St. Developed by Bentall Kennedy

GRANVILLE SQUARE

© 2016 Avison Young. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C.) Inc.; DBA, Avison Young.

Rezoning application was filed on July 8, 2015. A community open house was held September 14, 2015. The application went before the UDP during the week of October 19, 2015. The UDP did not support the building as it was proposed. Oxford is currently reviewing its overall development plan for the site. While the rezoning process is ongoing, no deadline has been set to resubmit the application.

Storeys / Office area TBD

SEYMOUR ST

Vancouver Centre II 753 Seymour St. Developed by GWL Realty Advisors

FUTURE 320 GRANVILLE

HARBOUR CENTRE

RICHARDS ST

225 Smithe St. Developed by Boffo Developments

601 West Hastings, Vancouver, B.C.

1575-1577 West Georgia & 620 Cardero St. Developed by Bosa Properties

400 - 1706 West 1st Ave Vancouver, BC, Canada V6J 0E4 T: 604-685-9913 F: 604-685-0694 [email protected] www.bharchitects.com

B+H ARCHITECTS

1133 Melville St. Developed by Oxford Properties

BANK OF NOVA SCOTIA BUILDING


UDP had supported the design on second review in May 2013. Rezoning application for the proposed building was approved and the public hearing was held July 15, 2014. A development permit application had still not been received by the City as of December 31, 2015. The project is subject to the city’s Central Waterfront Hub Framework, which remains under discussion.

Storeys / Office area TBD

Waterfront Tower 555 W. Cordova St. Developed by Cadillac Fairview

601 W. Hastings St. Developed by Morguard

SECTION ALONG HASTINGS LOOKING NORTH

U P DAT E D J U LY 2016

WEST PENDER ST

UDP supported the design in November 2013 as part of the UDP did not support the rezoning application, building design on January which was approved 28, 2015. A development SECTION ALONG SEYMOUR LOOKING WEST (with conditions) at a public hearing permit board meeting set for March on September 16, 2014. The project 9, 2015 was then cancelled. The 601 Hastings Tower was supported by the UDP on July architect subsequently presented 15, 2015, as part of its development nine alternative concepts in a UDP permit application. Construction had workshop in June 2015, which been scheduled to start by year-end received a “warmer reception.” The 2015 with completion in 2018, but did project is subject to the City’s Central not commence. Waterfront Hub Framework, which remains under discussion.


320 Granville St. Developed by Carrera Management Corp.

GRANVILLE ST

Downtown Proposed Developments

SINCLAIR CENTRE

WEST HASTINGS ST

Partnership.Performance. WEST CORDOVA ST

GRANVILLE SQUARE

Proposed Downtown Developments

I 5

Vancouver - Broadway

Negative annual absorption recorded only twice since ‘03

Vacancy and Absorption Graph: 450,000

410,466 6.5%

Vacancy Rate

6.0%

350,000

5.0%

300,000

5.1% 4.6%

229,994

4.6%

4.0%

200,000 96,889

100,000

0 -16,768

2011

150,000

50,000

34,752

1.0% 0.0%

250,000

4.5%

3.3%

3.0% 2.0%

400,000


7.0%

2012

2013

Vacancy

-50,000

-38,637 2014

2015

2016F

-100,000

Absorption

12-month projection based on 10-year average absorption and known net absorption in new inventory

Vacancy Trends Vacancy remained virtually unchanged year-over-year, down slightly to 4.5% at year-end 2015 from 4.6% at year-end 2014. Deal velocity was reasonably strong throughout 2015 and has been stable since 2014. Sublease vacancy, primarily in class A and B space, dropped considerably year-over-year to the lowest point since mid-year 2000. Class C vacancy dropped to 1.7% from 3% year-over-year, but that was primarily due to the demolition of two older office buildings for residential developments. While vacancy remained stable, several 10,000-sf-plus opportunities became available for occupancy in early 2016.

Absorption Trends Negative annual absorption of 38,637 sf marked only the second time since 2003 that the Broadway submarket registered negative annual absorption. The other occurrence was in 2013 and was even less at negative 16,769 sf. While companies such as Active Network, Lululemon, Rogers Financial Group and PrimeFocus expanded and/or established operations in the submarket, others such as Hothead Games, Bell Canada, Coastal.com and Rainmaker Entertainment downsized or relocated, particularly during the second half of 2015.

New Construction Renfrew Centre, a seven-storey, 161,610-sf office building developed by Blackwood Partners and AIMCo Realty, is scheduled for completion in the first quarter of 2016. The building is wholly available for lease. Construction continues on the Fifth, a four-storey, 76,000-sf office/light industrial building developed by Cressey that will be occupied by DHX Media after construction is completed in the fourth quarter of 2016. Phase two of Rize Alliance’s Containers development, which features an eight-storey, 143,000-sf office tower that will serve as the new home for the Canada Revenue Agency, is under construction and set for completion in the fourth quarter of 2016. Construction on the Lightworks Building, a six-storey, 54,000-sf office/ light industrial development in Mount Pleasant, is expected to break ground in the first quarter of 2016 with occupancy set for the fourth quarter of 2017. Construction is proceeding on a speculative basis as no tenants have been announced. PCI Group will kick off construction 6 I

Mount Pleasant’s light industrial/office district continues to evolve with PC Urban’s new Lightworks Building, a 54,000-sf, six-storey character development utilizing the former building facade. Recent Lease Deals – Year-End 2015 TENANT

BUILDING

SF

Symcor (renewal)

111 East 5th Avenue

PrimeFocus World

149 West 4th Avenue

47,000

Rainmaker Entertainment Inc. (renewal)

2025 West Broadway

45,000

Nicola Wealth Management (renewal/expansion)

1508 West Broadway

29,000

PHSA/Information Systems Management

1885 West Broadway

25,000

Immigrant Services Society of BC (renewal)

333 Terminal Avenue

17,300

Kit & Ace Designs

159 West 7th Avenue

16,760

Copperleaf Technologies

2920 Virtual Way

11,800

Vancouver Free Press Publishing Corp.

1635-1637 West Broadway

11,580

PHSA/Finance

1867 West Broadway

10,900

BC Public School Employers’ Association (renewal)

1333 West Broadway

10,800

Dorset College

1215 West Broadway

7,760

Rovio Entertainment Co. Ltd. (sublease)

555 West 12th Avenue

7,400

Trinimbus Technologies Inc.

1401 West 8th Avenue

6,040

50,000

of a seven-storey, 165,000-sf office tower at 565 Great Northern Way in spring 2016 with completion scheduled for fall 2017 to coincide with the opening of the new Emily Carr Institute of Art + Design campus. No prelease commitments have been announced. Construction on BlueSky Properties’ new 10-storey, 104,000-sf office/ retail building at 988 West Broadway commenced near the end of 2015. The building is primarily leased by Industrial Alliance, which is leasing approximately 75,000 sf and occupying all but two floors. The development permit application for phase one of Bentall Kennedy’s new office campus at 3030 East Broadway is nearing completion and will likely be filed in early 2016. Five office buildings totalling 962,300 sf are proposed for the site. There are no prelease commitments at this time. A proposal from GNW Trust to build a new four-storey, 60,360-sf building at 1933 Fraser Street at Great Northern Way Campus needs a prelease agreement to kick off construction. Development of office/light industrial projects in the Mount Pleasant node remains active. Rendition Developments has two projects underway Partnership.Performance.

Vancouver - Broadway

Vacancy remains among tightest in Metro Vancouver

in the neighbourhood, including The Mirror, a three-storey, 18,000-sf office/light industrial building at 7 West 6th Avenue, as well as a four-storey, 27,000-sf office/light industrial building at 204 West 6th Avenue. Construction has started on the Mirror and the building is scheduled for completion in the third quarter of 2016. A development permit application for 204 West 6th Avenue has been filed and construction is anticipated to start in the third quarter of 2016 with completion tentatively planned for the third quarter of 2017. Kevington Building Corp. had proposed the Q4 Block at 125 East 4th Avenue. However, the development has not gone forward as the owner evaluates the potential implications of the recent sale of the properties across the street to Hootsuite and Westbank and any associated zoning changes in the immediate vicinity that may come about as a result.

from years previous. Leasing activity is forecast to remain strong due to new opportunities in the Mount Pleasant employment area and fresh vacancies along the Broadway corridor and at Broadway Tech Centre. Vacancy is anticipated to rise in 2016 primarily due to the delivery of the wholly vacant Renfrew Centre.

Market Forecast Slight upward pressure on rental rates manifested in the submarket in the back half of 2015 due primarily to Industrial Alliance committing to take approximately 75,000 sf at 988 West Broadway and effectively removing the only large-block opportunity on the Broadway corridor proper. While some tenants in the Broadway submarket sought to control rising overhead costs by relocating to less expensive space, downsizing or spending capital to improve office space efficiencies, others had trouble securing suitable premises for expansion. This dichotomy is expected to remain in 2016. Lease rates are likely to remain stable in 2016 albeit slightly elevated

PCI Group is looking to deliver a seven-storey, 165,000-sf office building adjacent to the new Emily Carr Institute of Art + Design in fall 2017.

Mount Pleasant Employment Area (I-1 Zoning)

Developer

Building

SF

Completion

ince 2013, the emergence of the Mount Pleasant employment area has stimulated a number of value-add and redevelopment projects in the neighbourhood, resulting in the conversion of older industrial space to primarily office use or the redevelopment of industrial buildings to accommodate additional office uses. Many of the repositioned buildings are less than 20,000 sf and typically range from 5,000 sf to 18,000 sf. More developments are under way that have been preleased or presold. As a result, vacancy remains tight despite these additions as development boosts the total size of the market. Sublease space remains extremely limited in this area.

Blackwood Partners/AIMCo

Renfrew Centre, 2889 East 12th Avenue

161,610 (office)

Q1 2016

Rendition Developments

The Mirror, 7 West 6th Avenue (Mount Pleasant)

18,000

Q3 2016

Cressey

The Fifth, 380 West 5th Avenue (Mount Pleasant)

75,690 (office)

Q4 2016

Rize Alliance

Containers (phase II), 468 Terminal Avenue

143,000

Q4 2016

PC Urban Properties Corp.

The Lightworks Building, 22 East 5th Avenue (Mount Pleasant)

45,200 (office)

Q4 2017

PCI Group

565 Great Northern Way

165,000

Q4 2017

BlueSky Properties

Broadway Commercial, 988 West Broadway

94,120 (office)

Q1 2018

GNW Trust

Centre for Digital Media, 1933 Fraser Street

60,360

Awaiting prelease commitment

Rendition Developments

204 West 6th Avenue (Mount Pleasant)

27,000

Planning

Bentall Kennedy

3030 East Broadway (five buildings)

973,350

Proposed

Kevington Building Corp.

Q4 Block, 125 East 4th Avenue (Mount Pleasant)

27,205

Proposed

Westbank/Ivanhoé Cambridge

Oakridge Centre redevelopment

TBD

Proposed

S

Deal velocity picked up in 2015 as the market became increasingly popular as a vibrant new office district and additional technology tenants made it home. Developers and value-add investors have been entering or expanding their holdings in this desirable node. Lease rates rose in 2015 and this trend is expected to continue. New developments offer large inducement packages while repositioned assets offer less inducements as the space does not require a full buildout. Rents were in the mid $20s psf (with inducements) and that is expected to rise to the high $20s psf in the first half of 2016. The market outlook is strong for 2016 as new supply comes online and the City of Vancouver continues to encourage the shift in uses. CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

TOTAL VACANCY (%)


AVERAGE NET RENTAL RATE (PSF)

GROSS OCCUPANCY COST (PSF)

A

3,640,976

148,792

1,309

150,101

4.1%

21,445

$22 -$30

$39 - $48

B

1,715,203

103,663

1,003

104,666

6.1%

11,951

$18 - $23

$31 - $38

C

492,916

4,263

4,054

8,317

1.7%

-72,033

$15 - $19

$28 - $33

Total

5,849,095

256,718

6,366

263,084

4.5%

-38,637

-

-


I 7

Yaletown

Volatile year reflects extensive tenant churn

Vacancy with Space Availability Factor (SAF) and Absorption: 12.0%

50,000 39,047

Vacancy Rate / SAF

8.0%

6.9%

6,785

6.0% 4.0%

4.3%

30,000

23,928

19,732

4%

3.8%

3%

20,000 2.6%

0.5% 5% 4.1%

4%

-6,193

3.1%

2.0%

4.4%

2011

2012

 Vacancy

2013

2014

2015

0 -10,000 -20,000

-20,091 0.0%

10,000


40,000

10.0%

2016F

-30,000

Absorption  SAF* Space Availability Factor

12-month projection based on 10-year average absorption and nine-year average SAF


BUILDING

SF

McElhanney Consulting Services Ltd.

858 Beatty Street

39,810

The Westside School

910 Mainland Street

20,000

Double Negative (expansion)

1008 Homer Street

12,800

Eventbase Technology Inc.

1286 Homer Street

12,000

Splunk Inc.

860 Homer Street

10,150

iamota corporation

860 Homer Street

3,300

Engineering consultant McElhanney has leased 39,810 sf in 858 Beatty Street as it sets to expand into the former Avigilon space.

Absorption Trends

Vacancy Trends Vacancy in the Yaletown office market finished 2015 at 4.1%, up from 3.1% at year-end 2014, but down significantly from 7.5% at mid-year 2015. A number of tenants vacated the market in the first half of 2015, which led to a spike in vacancy to levels unseen since year-end 2009. That spike was short-lived as demand from small technology-related companies and the ongoing lack of new supply drove deal velocity in the second half. Large lease deals completed in the second half of 2015 at 858 Beatty, 1286 Homer and 910 Mainland should have an impact on vacancy in 2016. Market volatility is expected to continue with noteworthy Yaletown tenants, Avigilon and Blast Radius, set to vacate larger blocks of space in 2016. Vacant sublease space was non-existent at yearend 2015 – a marked decline from just six months earlier when more than 43,000 sf had been available.

Space Availability Factor (SAF) The space availability factor (SAF) refers to head lease and/or sublease space that is being marketed, but is not physically vacant. The SAF slipped to 3.8% (76,365 sf ) at year-end 2015 from 6.9% (139,110 sf ) at year-end 2014, its lowest point since year-end 2013 when the indicator reached 3% (61,439 sf ). Hence, the actual amount of available space currently being marketed (occupied and vacant) in Yaletown is 7.9% or approximately 159,000 sf.

Negative annual absorption of 20,091 sf at year-end 2015 represented a significant shift in the Yaletown market, which had not recorded negative annual absorption since 2009. A substantial uptake of office space in the second half helped to offset the significant negative absorption that characterized the first half of 2015. More than 10,000 sf of positive absorption occurred in each of the following properties: 855 Homer Street, 1008 Homer Street, 1286 Homer Street, 910 Mainland and 788 Beatty during the last six months of 2015. The positive absorption in the second half was predominately driven by smaller technology-related firms.

New Construction No new construction is currently planned for Yaletown.

Market Forecast While rental rates softened slightly in 2015 as the addition of new supply downtown combined with tenants relocating out of the submarket contributed to upward pressure on vacancy, lease rates should remain steady in 2016. Vacancy will likely remain volatile with Blast Radius set to close its doors at 1146 Homer and vacate 24,000 sf in 2016. Avigilon will vacate another 40,000 sf at 858 Beatty Street when it moves to its new downtown head office at 555 Robson Street in 2016. These vacancies will create rare opportunities for larger tenants to enter the typically tight submarket or provide expansion space within the submarket. Yaletown remains a unique market that continues to attract tenants in the technology and creative sectors, both of which are thriving in Vancouver; however, these large pockets of space coming available could heighten concerns regarding rising vacancy.

CLASS

Inventory

Head Lease Vacancy (sf)

Sublease Vacancy (sf)

Total Vacancy (sf)

Total Vacancy (%)

12-Month Absorption (sf)

SAF (sf)

SAF (%)

Net Rental Rate Range (psf)

Gross Occupancy Cost (psf)

A

576,938

7,446

0

7,446

1.3%

8,734

39,111

6.8%

$26 - $33

$41 - $49

B

998,357

53,989

0

53,989

5.4%

-32,228

10,903

1.1%

$19 - $25

$33 - $40

C

453,949

21,362

0

21,362

4.7%

3,403

26,351

5.8%

$14 - $20

$26 - $33

Total

2,029,244

82,797

0

82,797

4.1%

-20,091

76,365

3.8%

-

-

8 I


Burnaby

Vacancy stable as leasing drives positive annual absorption Vacancy and Absorption Graph: 16.0%

300,000

Vacancy Rate

Absorption Rate

Cressey will include a six-storey, 70,000-sf office building with retail space on the ground floor as part of the Kings Crossing development.

12.0%

212,072

10.0%

10.6%

Absorption Trends Positive annual absorption of 32,637 sf in 2015 marked the second consecutive year of positive absorption recorded in the market. While Telus vacated more than 40,000 sf at 3500 Gilmore Way, Thales Rail Signalling Solutions occupied 20,000 sf at 3555 Gilmore Way. Most absorption in 2015 was attributed to the occupancy of small pockets of vacancy. The office component of phase two of Appia Development’s SOLO District is scheduled for completion in the second quarter of 2016. The 230,000-sf office component, which consists of 12 floors in a 54-storey mixed-use tower, is approximately 18% preleased. Tenants include CMW Insurance (21,000 sf ), Bosa Development (11,000 sf ) and Embassy Properties (10,000 sf ). Cressey’s Kings Crossing development near the Edmonds SkyTrain station will include a 70,000-sf office/retail tower as part of the project and is set to break ground in fall 2016.

Market Forecast While rental rates remained stable in 2015 with landlords offering inducements to maintain face rates, more of the same is anticipated for 2016. Vacancy is expected to rise slightly due primarily to the delivery of the office component in SOLO District, which remains largely vacant. A more significant rise in vacancy will likely be offset by the removal of Metrotower III from the leasing CLASS

TOTAL RENTABLE (SF)

9.1% 7.8%



TOTAL VACANCY (SF)

32,637

34,390

100,000

52,757

50,000 0

4.0%

-50,000

2.0%

-100,000

-114,783 2011

2012

2013

2014

2015

-150,000

2016F

Vacancy Absorption 12-month projection based on 10-year average absorption and known net absorption in new inventory

Recent Lease Deals – Year-End 2015 TENANT Microsemi Corp. (renewal)

BUILDING 8555 Baxter Place

SF 125,000

Canadian Food Inspection Agency (renewal)

4321 Still Creek Drive

40,000

Crius Financial Services Corp. (renewal)

4720 Kingsway

20,000

Shoeme.ca (sublease)

3777 Kingsway

18,000

Fortinet Technologies


17,380

Konica Minolta Business Solutions (Canada) Ltd. (expansion) Solutre Inc.


17,000

9200 Glenlyon Parkway

15,000

Kiewit & Co.

4180 Lougheed Highway

15,000 13,070

Rising Star Learning

4664 Lougheed Highway

Regus Group (renewal)


12,500

Mindfield RPO Group Inc.

3480 Gilmore Way

11,500

Business Centre Solutions

3292 Production Way

11,500

Infoblox Canada Ltd.

4710 Kingsway

11,000

Schweitzer Engineering Laboratories Inc.

4299 Canada Way

10,500

Aerotek


8,200

Developer

New Construction

150,000

6.0%

0.0%

Building

SF

Appia Group

SOLO District (phase II)

230,000 (office)

Cressey

Kings Crossing, 7350 Edmonds Street 63,000 (office)

Completion Q2 2016 Q4 2018 Awaiting prelease commitment Proposed

Kingswood Capital Discovery Place Business Park

50,000

Sears Canada

4750 Kingsway (Metrotown)

Two office towers

Shape Properties

Brentwood Town Centre

One/two office towers Proposed

Onni Group

Gilmore Station

996,900 (office)

Proposed

market as it will be primarily occupied by its new owner, Metro Vancouver, in the next 18 months. The regional authority’s former head office will likely be redeveloped and subsequently removed from Burnaby’s office inventory. It is anticipated that deal velocity will be slow as the majority of tenants in the market with lease expiries in 2016 have already been addressed. Engineering firms with connections to the oil and gas industry may return additional space to the market, but it is expected that tech tenants will expand. Most deal velocity or growth will be organic through renewals or renewal/expansions. TOTAL VACANCY (%)




A

6,081,516

797,795

118,394

916,189

15.1%

-24,972

$16 - $28

$30 - $42

B

2,081,671

174,366

0

174,366

8.4%

-225

$14 - $18

$27 - $31

C

937,068

83,284

1,650

84,934

9.1%

57,834

$13 - $19

$24 - $30

Total

9,100,255

1,055,445

120,044

1,175,489

12.9%

32,637

-

-


250,000 200,000

12.9%

12.6%

8.0%

Vacancy Trends Vacancy remained stable in Burnaby during 2015 and finished the year at 12.9%, almost unchanged from the 12.6% recorded at year-end 2014. Most of the major lease deals were renewals with a limited shuffling of smaller tenants already in the submarket making up the majority of lease activity. Telus continued to vacate the Burnaby market as it consolidates operations in its new head office in Downtown Vancouver. Current tenants in the market are taking on expansion space to capitalize on the favourable terms being given by landlords. Smaller tenants have been filling pockets of vacancy, particularly in class B space. Sublease availability remains primarily limited to Telus’ former space at 3777 Kingsway and in Willingdon Park. There were few new entrants to the submarket in 2015. Tenants have a wide range of options to consider and landlords have had to provide inducements to attract new tenants and maintain face rates.

14.5%


248,017

14.0%

I 9

Most positive annual absorption recorded since 1997

Richmond Vacancy and Absorption Graph 25.0%

200,000

186,883

180,000

167,121

Vacancy Rate

20.0%

160,000 19.3% 110,703

15.0%

140,000 15.4%

120,000

15.2% 12%

10.0%

100,000 11%

80,000

Absorption (sf)

23.3%

60,000 5.0%

41,264

10,124 0.0%

7,545 2011

2012

2013

Vacancy

2014

2015

2016F

40,000 20,000 0

Absorption

12-month projection based on 10-year average absorption

Vacancy Trends Vacancy declined to its lowest level since year-end 2007 as tenants renewed and/or expanded, capping off a five-year period of recovery during which vacancy fell to 12% at year-end 2015 from 24.6% at year-end 2010. Tenants are increasingly drawn to the No. 3 Road corridor due to its proximity to transit; however, available office space in the area is in short supply and high demand. Richmond’s more traditional office parks have also recorded lower vacancy as businesses were increasingly attracted to the value proposition offered in the form of moderate rents and the ability to expand within the park. A lack of new supply has contributed to tenants absorbing existing space, particularly in class B assets. Vacancy is anticipated to continue to tighten through 2016 as potential new supply is in process with the city, rental rates remain modest and landlords continue to offer generous tenant inducement packages.

Absorption Trends Annual absorption in 2015 was the most recorded since 2005 and was the second highest achieved in Metro Vancouver. A combination of expansions and relocations contributed to positive absorption in all classes, including more than 122,000 sf of class A space. Modest rental rates remain a key factor in driving absorption, particularly in class B space, which has resulted in very few tenants relocating out of the market and subsequently generating positive organic absorption. This trend is anticipated to continue with no new supply likely to disrupt absorption in the next 12 months and rental rates that will help secure existing tenants and potentially attract new ones.

New Construction A lack of new construction has been one factor contributing to the recovery of Richmond’s office market, but that may soon change. An increasing number of rezoning and development permit applications have been filed with the City of Richmond since 2014. All remain in process. CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

Leasing activity in Crestwood Corporate Centre contributed to the recovery of Richmond’s office market in 2015. Recent Lease Deals – Year-End 2015 TENANT

BUILDING

SF

Boeing Co. (renewal)

Crestwood Corporate #5/#6

42,210

Wenco International Mining Systems Ltd.

Crestwood Corporate #8

29,065

Sierrra Wireless Inc.

13911 Wireless Way

23,060

Star Solutions International Inc. (renewal)

4600 Jacombs Road

21,050

Clevest Solutions Inc.

Crestwood Corporate #2

19,970

Syscon Justice Systems

3600 Lysander Lane

17,920

Kahn Zack Ehrlich Lithwick LLP

Airport Executive Park #7

13,080

Developer

Building International Gateway Centre Ampar Ventures Ltd. Ampri (office/hotel) New Continental 8320, 8340 & 8440 Bridgeport Way; and 8311 Properties Inc. & 8351 Sea Island Way Westmark 4100, 4120, 4126, 4140, 4180 & 4220 Garden Development Group City Road and 9131, 9151 & 9191 Odlin Road Bene Development 4700 No. 3 Road Ltd. Formation Project 8740, 8760, 8780, 8880 & 8900 Charles Street Mgmt. iFortune Center (6840 & 6860 No. 3 Road and iFortune Homes Inc. 8051 Anderson Road)

SF

Completion

105,000 (office)

Proposed

101,540 (office/campus) 71,990 (office/ commercial) Nine-storeybuilding (retail/office)

Proposed

45,210 (office)

Proposed

102,740 (office)

Proposed

Proposed Proposed

Market Forecast Richmond’s recovery is expected to slow in 2016 as balance returns to the market and vacancy continues to tighten and absorption remains positive. Rental rates are forecast to remain largely unchanged, but some upward pressure on rents for office space located along the No. 3 Road corridor, particularly in Downtown Richmond, may begin to manifest. New office construction may also break ground in 2016, which could lead to the delivery of new office product in 2017/18, which would mark the first time new office supply had been delivered since 2008. TOTAL VACANCY (%)




A

2,895,256

356,574

53,542

410,116

14.2%

122,765

$16.50 - $18

$27 - $29.50

B

972,346

31,834

7,817

39,651

4.1%

42,115

$13.50 - $15

$25 - $26.50

$10.50 - $11.50

$18.50 - $20

C

348,198

54,653

0

54,653

15.7%

22,003

Total

4,215,800

443,061

61,359

504,420

12%

186,883

10 I

-


Surrey

Positive annual absorption reducing elevated vacancy Vacancy and Absorption Graph

Vacancy Rate

16,018

22.1%

20.0%

14,475

- 6,879

17.5%

17.3% 15.0%

60,000

36,751

20,000 0

18.6%

-20,000

- 47,226

-40,000 -60,000

11.5%

10.0%

-80,000

8.8%

-100,000

5.0%

-120,000 -137,809

0.0%

40,000

Absorption (sf)

25.0%

2011

2012

2013

Vacancy

-140,000

2014

2015

-160,000

2016F

Absorption


Coast Capital vacated its former headquarters at 15117 101st Avenue, which contributed to Surrey’s elevated vacancy rate.

Vacancy Trends Vacancy declined to 17.5% at the end of 2015 from 22.1% a year earlier, but did rise from mid-year and remained elevated in all classes. Coast Capital vacated more than 100,000 sf when it relocated to The HUB at King George Station in fall 2015. While approximately half of Coast Capital’s former space will be backfilled by Westminster Savings, Coast Capital’s old head office at 15117 101st Avenue remains mostly vacant. Additional vacancy was also delivered in the HUB with two floors remaining to be leased. Surrey’s office market has not recovered from the departure of a handful of large tenants in 2013/14. The ongoing delivery of speculative office supply continues to exacerbate vacancy further.

Absorption Trends Annual positive absorption of 36,751 sf represented the greatest amount of annual absorption recorded in Surrey since year-end 2010, but was primarily due to activity that occurred in the first half of 2015. The combination of Coast Capital’s relocation and the delivery of The HUB at King George Station (which was partially vacant) in the second half impacted annual absorption negatively. Westminster Savings will occupy Coast Capital’s former space at Central City in 2016 when it relocates from New Westminster, a move that will contribute positive absorption to the Surrey market. Developer Industrial Alliance

Building Gateway Place, 13479 108th Avenue (office/retail)

Lark Group

City Centre 2, 9639 137A Street

Landview Construction

GTC Professional Building, 10189 153rd Street The Hub at King George Station (phase two), 9900 King George Boulevard (office/retail)

PCI Group/Triovest Avondale Development Corp. / Monark Group Circadian Projects CLASS

SF 56,000 (office) 172,000 (office)

Q3 2016

New Construction Industrial Alliance’s Gateway Place is under construction and is scheduled to be delivered in the third quarter of 2016. Construction on Lark Group’s City Centre 2 broke ground in January 2016 and has no prelease commitments in place. PCI Group/Triovest is preparing for phase two of its mixed-use development near the King George SkyTrain station, which will include approximately 170,000 sf of office space. Avondale Development’s The Professional Centre @ South Point is proposed to start construction in 2016. Circadian Projects’ proposed 18-storey office tower remains in process with the City of Surrey.

Market Forecast Despite moderate leasing activity in the Surrey market in 2015, absorption is anticipated to remain minimal (but positive) and vacancy is expected to rise slightly in 2016 due in part to the delivery of vacant new supply. Rental rates will remain flat in 2016 as a plentiful supply of options, both large and small, continues to provide tenants with a range of choices. Leasing activity will continue to be spread among Surrey’s submarkets such as Guildford, Central City, Newton, etc. With Gateway Place currently scheduled as the only new supply to be delivered until late 2018, organic absorption during the next two years may assist in lowering the elevated vacancy that has characterized the market since 2013.

Completion TENANT

Recent Lease Deals – Year-End 2015 BUILDING

SF

Westminster Savings Credit Union

10153 King George Boulevard

52,900

Q3 2018

Village Church

14928 56th Avenue

22,000

103,700

Awaiting prelease commitment

Frozen Mountain Software (sublease)

5455 152nd Street

11,500

170,000 (office)

Planned

Dale Matheson Carr-Hilton Labonte LLP

1688 152nd Street

11,000

Regus Group

15300 Croydon Drive

11,000

The Professional Centre@ South Point, 3231 152nd Street

87,500 (office)

Proposed

Fraser Health

7327 137th Street

6,500

Westland Insurance

Morgan Creek Corporate

5,600

9677/9681 King George Boulevard

178,000

Proposed

Direct Credit

7495 132nd Street

4,500

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

TOTAL VACANCY (%)




A

2,019,968

319,534

28,178

347,712

17.2%

-22,748

$18 - $30

$32 - $43

B

626,010

118,525

0

118,525

18.9%

58,628

$13 - $18

$26 - $30

$9 - $13

$23 - $25

-

-

C

205,629

33,853

0

33,853

16.5%

871

Total

2,851,607

471,912

28,178

500,090

17.5%

36,751


I 11

New Westminster

Positive annual absorption slowly chipping away at vacancy Vacancy and Absorption Graph 25.0%

20.8%

150,000 16.8%

15.0%

100,000

15% 12.7%

11.8%

52,537 9.3%

5.0%

50,000

29,444 39,368


Vacancy Rate

20.0%

10.0%

200,000

178,035

0

-1,478 -33,147

-50,000

0.0% 2011

2012

2013

Vacancy

2014

2015

2016F

Absorption


Recent Lease Deals – Year-End 2015

The 137,000-sf Anvil Centre office tower remains vacant and will continue to significantly impact vacancy and leasing activity in New Westminster. Developer

Building

SF

Completion

Bentall Kennedy

97 Braid Street (near Braid Street SkyTrain station) part of proposed Sapperton Green mixed-use development site

Up to 400,000 (office)

Proposed

Vacancy Trends Vacancy tightened to 15% at year-end 2015, down from 16.8% 12 months earlier, and is the lowest recorded vacancy since the delivery of the stillvacant Anvil Centre office tower in the first half of 2014. Deal velocity has been minimal in all classes with many tenants choosing to renew long-term lease deals as opposed to relocating. Class A vacancy of 24.5% represents a disproportionate share of overall vacancy in New Westminster when compared with vacancy in class B and C assets. Approximately 72% of New Westminster’s class A vacancy is located in the Anvil Centre’s office tower. The decline in vacancy recorded in 2015 was the result of lower-cost sublease space being taken up accompanied by modest leasing activity in all asset classes.

Absorption Trends Annual positive absorption of 29,444 sf represented the greatest amount of positive absorption recorded in New Westminster since TransLink and its related companies occupied their new head office in Wesgroup’s Brewery District development in 2013. The potential for achieving substantial annual positive absorption moving forward remains largely limited until the fate of the 137,000-sf office tower at the Anvil Centre is settled or a significant lease deal is announced. CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

TENANT

BUILDING

SF

Fraser Health

8,000

Amix Group

287 Nelson’s Court (TransLink building) 625 Agnes Street

Sea To Sky Law Corp.

625 Agnes Street

6,170

Hanson International Academy

960 Quayside Drive

3,220

J.Y. Kim & Associates

800 McBride Boulevard

2,000

7,600

New Construction There is currently no new office construction underway in New Westminster. Strata office space and build-to-suit opportunities are available in the Brewery District. Redevelopment plans involving Bentall Kennedy’s proposed mixed-use community, Sapperton Green, were postponed as a result of Amazon.com choosing to extend and expand its lease commitment to a warehouse located on a portion of the proposed redevelopment site. However, a valid and active development permit for two office buildings up to 400,000 sf still remains in place for the property, but a prelease commitment would be necessary to start construction.

Market Forecast Deal activity is forecast to remain nominal in 2016 (as it was in 2015) with limited positive absorption contributing to a slight decrease in vacancy. Rental rates are anticipated to remain flat. New construction will likely remain at a standstill unless accompanied by a significant prelease commitment. The departure of Westminster Savings from the submarket in 2016, the result of combining of its operations at 422 Sixth Street and 960 Quayside Drive into the Central City office tower in Surrey, could exacerbate vacancy further and negatively impact absorption. The potential leasing (or stratification) of the office tower at the Anvil Centre, which was sold to private investors in February 2014, remains the largest factor influencing the New Westminster office submarket moving forward. TOTAL VACANCY (%)




A

780,114

190,901

0

190,901

24.5%

14,337

$19 - $27

$32 - $41

B

700,684

48,280

0

48,280

6.9%

8,876

$13 - $17

$25 - $28

$8 - $12

$20 - $24

C

207,774

14,501

0

14,501

7%

6,231

Total

1,688,572

253,682

0

253,682

15%

29,444

12 I

-


North Shore

Vacancy tightening due to absorption and limited supply

Vacancy and Absorption Graph 16,128

10.0%

6,576

Vacancy Rate

9.6% 8.0%

8.2%

8.5%

7.8%

-8,891

7.3%

20,000 790

0

7.9%

-20,000

6.0% -40,000 4.0%

-60,000

-56,772

2.0%


40,000

12.0%

-80,000 -86,621

0.0% 2011

2012

2013

-100,000

2014

Vacancy

2015

2016F

Absorption



BUILDING

SF

Petitt and Company

2609 Westview Drive

4,870

Everything Wine

758 Harbourside Drive

4,860

North Shore Heart Group

1133 Lonsdale Avenue

4,070

W.L. Macdonald Law Corporation

221 West Esplanade

3,010

Hanson & Co. Personal Injury Law

1401-1409 Lonsdale Avenue

2,050

Harbourview Projects’ new East Esplanade strata light industrial/office development highlights the trend towards the mixed-use redevelopment of older single-use buildings.

Absorption trends

Developer

Building

SF

Completion

Positive annual absorption of 6,576 sf was recorded at year-end 2015. The majority of absorption was registered in class B properties with minimal absorption in class A and C properties. Demand was strong in the first half of 2015 with few lease options, but weakened in the second half.

Harbourview Projects

East Esplanade, 350 & 370 East Esplanade West Quay, 260 West Esplanade (mixed use) CentreView, 1308 Lonsdale Avenue (mixed use) 801, 889 & 925 Harbourside Drive and 18 Fell Avenue (mixed use) 1301 Lonsdale Avenue

22,443 (strata office/showroom) 38,000 (strata office/retail)

Q1 2017

New Construction

78,800 (office)

Q3 2017

204,000 (office)

Proposed

14,100 (office)

Proposed

Polygon Onni Group Concert Properties Hollyburn Legacy Prop Ltd.

Q3 2017

Vacancy Trends Vacancy in the North Shore office market tightened to 7.3% at year-end 2015, a drop from the 7.8% registered just 12 months earlier. Increased leasing activity in class A and B properties – primarily small pockets of space being absorbed in multiple buildings – along with a lack of new supply helped to push vacancy lower. With no new supply delivered until 2017, vacancy is expected to continue to tighten. Preleasing activity has been limited in the market – one of the smallest in Metro Vancouver – and which is generally characterized by office tenants with small space requirements. The addition of Onni Group’s CentreView development will have a significant impact on vacancy if delivered vacant in 2017. Strata office projects under development may impact vacancy if tenants choose to become owners due to the lack of lease options and the low cost of capital. Sublease vacancy rose due to Newalta Corp. vacating 111 Forester Street. CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

Harbourview Projects’ four-storey East Esplanade light industrial/office development will offer strata office space on its second and third (including mezzanine) floors. CentreView will offer 78,800 sf of office space on four floors as well as ground-floor retail when it is completed in 2017. No office tenants have been confirmed for the project. Polygon’s West Quay development will offer 38,000 sf of strata office/retail space when completed in the third quarter of 2017. Concert Properties submitted its development permit application in January 2016 for the first phase of its proposed mixed-use Harbourside development. The first phase, which includes 40,000 sf of retail space, could break ground by fall 2016. The four-phase development will include 204,000 sf of office space when completed.

Market Forecast Rental rates remained stable in 2015 with some landlords providing inducements to tenants to ensure buildings remain fully occupied. Upward pressure on rates may start to manifest in 2016 as vacancy tightens and the lack of new supply becomes more pronounced. The large blocks of space coming to market in CentreView have not been seen on the North Shore in years and will create new opportunities for tenants. For larger tenants, options are currently limited in the market, which has resulted in very few choices if expansion or relocation is necessary. Strata buildings will continue to have an impact on vacancy as some tenants embrace ownership opportunities. TOTAL VACANCY (%)




A

793,013

29,265

14,752

44,017

5.6%

1,694

$20 - $27

$31 - $43

B

481,395

41,306

3,552

44,858

9.3%

3,630

$15 - $19

$23 - $31

C

97,690

11,705

0

11,705

12%

1,252

$13 - $16

$19- $26

Total

1,372,098

82,276

18,304

100,580

7.3%

6,576

-

-


I 13

14 I 0%


Vancouver-Broadway PCI Group 7 165,000 sf 75,000

80%

Vancouver-Broadway BlueSky Properties 10 94,120 sf

0%


Surrey Lark Group 12 172,000 sf

Q3 2018 City Centre 2 9639 137A St.

0%


Surrey Industrial Alliance 4 56,000 sf

Q3 2016 Gateway Place 13479 108th Ave.

100%

0%


Burnaby Cressey 10 63,000 sf

Q4 2018 Kings Crossing 7350 Edmonds St.

143,000 sf

Vancouver-Broadway Rize Alliance 8 143,000 sf

Q4 2016 Containers (phase II) 468 Terminal Ave.

© 2016 Avison young. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison young Commercial real Estate (b.C.) Inc.; DbA, Avison young.

0%


Tenants

Occupancy rates

Vancouver-Broadway PC Urban Properties Corp. 6 45,200 sf

Q1 2018 Broadway Commercial 988 West Broadway

Q4 2017 565 Great Northern Way

Q4 2017 The Lightworks Building 22 East 5th Ave.

City Developer Storeys Office sf

100%

75,690

Vancouver-Broadway Cressey 4 75,690 sf

Q3 2016 Fifth 380 West 5th Ave.

18%

10,000 sf

11,000 sf

20,000 sf

Burnaby Appia Developments 12 (office) 230,000 sf

Q2 2016 SOLO District (Phase II) 2025 Willingdon Ave.

0%


Tenants

Occupancy rates

Vancouver–Broadway Blackwood Partners/AIMCo Realty 7 161,610 sf

Q1 2016 Renfrew Centre 2889 East 12th Ave.

City Developer Storeys Office sf

Tenants (leased) Residential

U P DAT E D F E b r UA r y 2016

Suburban Development Timeline

0%


North Shore Onni Group 5 78,800 sf

Q3 2017 CentreView 1308 Lonsdale Ave.

Suburban Development Timeline


Special Feature BC to lead Canada in economic growth through 2019 despite volatility

T

he British Columbian economy will weather global economic turmoil and grow faster than any other province until at least 2017, according to economic forecasts from Central 1 Credit Union and the Conference Board of Canada.

approach 2.3% by 2017. Conversely, the unemployment rate is forecast to remain largely unchanged - around 6% - in Vancouver and BC in 2016 when compared with 2015, but then decline by 50 basis points to approximately 5.5% in 2017.

Vancouver is expected to continue to lead Canada in terms of economic performance in 2016 and remain an engine of employment generation. Both forecasts indicate that the province will lead the country in terms of real GDP until 2017 with Central 1 forecasting that BC will outperform the rest of Canada through 2019. Low interest rates and a lower currency will benefit BC despite the difficulties posed by a weak commodity sector.

Central 1 Credit Union forecasts similar figures related to BC’s unemployment rate with provincial unemployment dropping from 6.3% in 2016 to 5.4% in 2017 followed by a further decline to 4.4% in 2018 and 4% in 2019.

“Hiring momentum will gear off economic growth and drive employment growth of 1.7% this year, and above two per cent over the remainder of the forecast period,” according to Central 1 Credit Union’s Economic Analysis of British Columbia published in January 2016. “Relatively stronger labour market and economic trends in BC will attract a rising number of residents from other provinces, offsetting modest international migration trends.”

The main highlights from the paper include:

“Provincial unemployment is forecast to climb this year to 6.3% but that will reflect increased confidence rather than deterioration in the labour market,” according to the Credit 1. “ The unemAccording to Credit 1, housing investment “Hiring momentum will gear off economic ployment rate will return to a declining trend and household demand will support modergrowth and drive employment growth of in 2017 onwards, reflecting a combination of hiring and demographics.” ate economic growth of 3% in 2016. A decline in the Canadian dollar and an improving U.S. 1.7% this year, and above two per cent over While rosy economic forecasts for BC and Vanthe remainder of the forecast period.” economy will strengthen export activity in couver bode well, there is still some work to be sectors such as tourism, services, and non- Central 1 Credit Union done when it comes to head office employresource goods. Economic growth greater ment, according to a new Business Council of British Columbia Policy than 3% is forecast in 2017 and 2018 and then 2.8% in 2019 due to stable Perspectives paper, Canadian Head Office Survey: How Do Metro Vancouver consumer activity and greater business investment. and British Columbia Stack Up?

The Conference Board of Canada’s economic outlook for BC highlights that construction on the first multi-billion-dollar LNG terminal could start in late 2016, which would provide a strong boost to the construction industry and business services. The conference board outlook also highlights the BC housing market and indicates that it shows “no signs of fatigue and remains a dominant factor in the solid performance of the economy.” While Vancouver’s GDP has led the province in terms of real GDP growth since 2010, according to the Conference Board, provincial GDP is forecast to surpass Vancouver’s GDP in 2016 with real GDP in both the province and the city forecast to be about 3% in 2017. The Conference Board forecasts that mixed-use and non-residential construction will make the construction sector Vancouver’s top economic performer. Employment growth is forecast to exceed 2% in both BC and Vancouver in 2016 and

• Statistics Canada’s Annual Head Office Survey shows that Metro Vancouver has room for improvement if the region wants to “punch at its weight” compared with other major cities across Canada. • Attracting new corporate offices, and growing more local firms into larger-scale businesses, would strengthen Metro Vancouver’s and British Columbia’s economic diversity and also create more high-paying jobs. • Different levels of government and the business community have partnered to launch two recent initiatives aimed at increasing the corporate office presence in Metro Vancouver – and these have scored a couple of early “wins,” suggesting that Metro Vancouver can compete on the world stage despite the disadvantages stemming from high housing costs and a lacklustre reputation as a global business centre. • To build a stronger corporate sector, political, civic and business leaders need to collaborate to: establish a clear vision for the region, speak with one voice, address Metro Vancouver’s reputation as a “high-cost jurisdiction” for companies, and overcome the perception in some quarters that Vancouver is “not a city for global business.”

Forecast Summary: British Columbia 2014

2015

2016

2017

2018

Real GDP, % Change

3.2

3.4

3

3.2

3.4

2019 2.8

Nominal GDP, % Change

4.7

3.4

3.8

5.2

6.1

6.2 1.6

Employment, % Change

0.6

1.2

1.7

2

2.5

Unemployment Rate, (%)

6.1

6.1

6.3

5.4

4.4

4

Population, % Change

1.2

1

1

1.1

1.3

1.2

Housing Starts (000s)

28.4

31.1

33.8

34.7

34.1

33.9

Retail Sales, % Change

5.6

6.4

4.3

5.3

5.6

5.5

Personal Income, % Change

3.6

4.5

4.6

4.8

5.5

5.4

Net Operating Surplus Corporations, % Change

8.7

-15.7

-9.6

3.6

0.2

6.4

Consumer Price Index, % Change

1

1.1

1.8

1.7

1.9

2.3

Source: Statistics Canada, Central 1 Credit Union Partnership.Performance.

I 15

continued from page 1

Sublease vacancy at year-end 2015 in the 50-msf Metro Vancouver office market rose to 9.7% (of total vacancy) from 9% at year-end 2014. Regional sublease vacancy has remained stable since mid-year 2014, hovering between 9% and 10% despite a significant expansion of the office market since that time. Downtown sublease vacancy dropped to 11.7% (of total vacancy) at year-end 2015 from 12.9% a year earlier. Excluding mid-year 2015 sublease vacancy of 10.1%, Downtown sublease vacancy at year-end 2015 was the lowest since year-end 2003. Concerns that sublease vacancy could spike substantially after the delivery of significant new supply in 2015 have not materialized. Outside the Downtown core, the amount of vacant sublease space has slipped to its lowest point since at least 2004. Two submarkets, Yaletown and New Westminster, have no sublease vacancy, while Vancouver-Broadway has less than 7,000 sf. Only Burnaby, Richmond and the North Shore have sublease vacancy that exceeds 10% (of total vacancy). Following the delivery of new office product in suburban markets through 2013 and 2014, more than 1.7 msf was added to the Downtown core in 2015. Another 800,000 sf is scheduled for delivery Downtown by the end of 2018, and more than 700,000 sf of new supply is scheduled for completion by the first half of 2018 in the Vancouver-Broadway submarket. More than 290,000 sf is planned for Burnaby by 2018 and almost 230,000 sf of new inventory is anticipated to be completed in Surrey by the second half of 2018. The North Shore will add almost 79,000 sf by the second half of 2017 (along with more than 60,000 sf of strata office space). In total, more than 2 msf of new office space is scheduled for delivery in Metro Vancouver by 2018.

For more information please contact: Michael Keenan, Principal & Managing Director Direct Line: 604.647.5081 [email protected] Andrew Petrozzi, Vice-President, Research (BC) Direct Line: 604.646.8392 [email protected] Sherry Quan, Principal & Global Director of Communications & Media Relations Direct Line: 604.647.5098 [email protected]

Avison Young Office Leasing Team Nicolas Bilodeau [email protected]

David MacFayden [email protected]

Robin Buntain [email protected]

Justin Omichinski [email protected]

Fergus Cameron [email protected]

Brian Pearson [email protected]

Matthew Craig* [email protected]

Leeanna Petrik [email protected]

Shaan Desai [email protected]

Max Ripper [email protected]

The Downtown market is expected to remain stable for the next 12 to 18 months as the market continues to digest the new space delivered in 2015 and new supply remains limited and primarily preleased through 2016. Delivery of the Exchange building (which is under construction and remains largely vacant) in the second quarter of 2017 may negatively impact the Downtown office submarket depending on the economic conditions present at the time and if the source of ongoing tenant demand remains unclear. Overall suburban vacancy decreased to 11.1% at year-end 2015 from 11.9% at year-end 2014. The tightening of suburban vacancy came in large part from organic growth and expansion in the Richmond submarket as well as an overall improvement in leasing activity generally.

Bill Elliott [email protected]

Dan Smith [email protected]

Glenn Gardner* [email protected]

Josh Sookero* [email protected]

Sean Keenan [email protected]

Terry Thies* [email protected]

Derek Lee [email protected]

Tammy Stephen [email protected]

James Lewis [email protected]

Matt Walker [email protected]

Jason Mah* [email protected]

Ian Whitchelo* [email protected]

Metro Vancouver’s office market is well prepared for 2016 having come through the largest expansion of office space in decades with regional vacancy remaining at 10%, face rates largely intact and sublease vacancy at new lows. While risk factors such as the overestimation of future tenant demand, the end of the commodities cycle and rapidly escalating building costs remain present, the region’s fundamentals remain largely unscathed after the significant expansion of the region’s office market. The stage is already set for the next wave of development should those risks be managed accordingly. 

*Personal Real Estate Corporation

Vacant Sublease Space

Avison Young #2900-1055 W. Georgia Street Box 11109 Royal Centre Vancouver, BC V6E 3P3, Canada

600,000

Square Feet

500,000 476,210

480,936 425,921

400,000 299,773

300,000

322,884 240,814

200,000

182,108 125,721

100,000 0

2010

2011

249,851 234,251 190,092

148,684

2012

Metro Vancouver

avisonyoung.com © 2016 Avison Young. All rights reserved.

2013

2014

Downtown

2015

E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C.) Inc.; DBA, Avison Young.