Office Market Report - Avison Young

Metro Vancouver

Office Market Report Mid-Year 2013

VACANCY (SUPPLY)

RENTAL RATES

Office vacancy rises in Downtown and suburbs as Metro Vancouver leasing activity slows

M

etro Vancouver’s office market demonstrated strong fundamentals at mid-year 2013 despite slowing leasing activity as new construction proceeded in both Downtown and suburban markets. However, the region registered negative six-month absorption for the first time since 2009. Overall regional negative absorption of 179,980 sf was attributed to a combination of small vacancies and downsizing in the Downtown core accompanied by the consolidation of large suburban tenants or tenants shifting out of the lease market into build-to-suit premises. Surrey led Metro Vancouver suburbs in terms of negative absorption from January 1 to June 30, 2013 while the Downtown market recorded negative absorption for the first time since 2009. New Westminster led the region in terms of positive absorption thanks primarily to the occupancy of the second phase of The Brewery District by regional public transit authority TransLink and its affiliated tenants. Richmond also enjoyed positive absorption as the market’s slow recovery continued to take root.

Downtown vacancy rose to 4.6% from 3.3% at mid-year 2012, and is also the most vacancy registered since mid-year 2011. While vacancy rates at mid-year 2013 for the three submarkets that comprise Vancouver proper - Downtown, Yaletown and Broadway - all rose compared with 12 months earlier, each remained less than 5%. Overall suburban vacancy rose to 10.1% at mid-year 2013 from 9.6% at mid-year 2012. While vacancy in many suburban markets remained relatively stable with slight upward pressure, significant changes rippled through two suburban markets. Surrey’s office vacancy rate spiked to 16.7% at mid-year 2013 from 9.2% at mid-year 2012. A softening leasing market overall, combined with the departure of three significant tenancies, collectively drove vacancy to the second highest rate in Metro Vancouver at mid-year 2013. Richmond, which has seen office vacancy drop steadily since it peaked at 24.6% at continued on back cover...

Metro Vancouver - Vacancy and Absorption Trends 9.0% 8.0% 7.0% 6.0%

7.8%

8.4%

532,275

246,777

7.4%

800,000

640,019 7.5%

7.0%

600,000 333,020

200,000

7.0%

0

5.0%

-200,000

-179,980

4.0%

-400,000

3.0%

-600,000

2.0% 1.0% 0.0%

At mid-year 2013, vacancy in Metro Vancouver climbed to 7.5% from 7% at year-end 2012 and 6.7% 12 months earlier, representing the highest point since mid-year 2011.

400,000 Absorption Rate

ABSORPTION (DEMAND)

7.5% 7.0%

Vacancy Rate Vacancy Rate

Vacancy rate June 30, 2013: Vacancy rate December 31, 2012:

-800,000 -1,034,999 2009 2010

-1,000,000 2011

2012

Vacancy

Mid 2013 Absorption

2013F

-1,200,000

12-month projection based on 10-year average absorption.

Metro Vancouver Office Vacancy Summary (Mid-Year 2013) DISTRICT

INVENTORY (SF)

Downtown

HEAD LEASE VACANCY (SF)

SUBLEASE VACANCY (SF)

TOTAL VACANCY (SF)

VACANCY RATE (%)

6 MONTHS ABSORPTION (SF)

21,207,615

718,928

246,466

965,394

4.6%

-168,293

Yaletown

2,023,244

95,933

2,422

98,355

4.9%

2,011

Broadway

6,681,377

291,562

24,839

316,401

4.7%

5,437

Burnaby

9,181,817

798,021

22,758

820,779

8.9%

-104,046

Richmond

4,196,438

690,064

37,687

727,751

17.3%

80,873

Surrey

2,525,295

321,825

99,825

421,650

16.7%

-153,390

New Westminster

1,532,572

134,850

0

134,850

8.8%

168,833

North Shore

1,477,580

146,486

7,064

153,550

10.4%

-11,405

48,825,938

3,197,669

441,061

3,638,730

7.5%

-179,980

TOTAL

Downtown

Negative absorption for first time since 2009

Vacancy Trends Slight increases in vacancy across all building classes resulted in overall Downtown vacancy climbing to 4.6% at mid-year 2013, the highest since mid-year 2011, and up 130 basis points from 3.3% a year ago. The rise in vacancy is largely attributable to small increases in vacancy across numerous locations rather than a few significant events in specific buildings. The greatest increase came in class AAA vacancy, which climbed to 2.7% from 0.7% at year-end 2012 and 0.8% a year earlier. Class A vacancy hit 3.8%, rising from 3.1% at year-end 2012 and 1.7% at mid-year 2012. [Class B vacancy (4.9%) remained virtually unchanged from year-end 2012 but did rise incrementally from 4.3% a year earlier.] From a square footage perspective, vacancy was most plentiful in class B premises. While sublease space has increased by more than 30% in the first half of 2013, it still comprised only about 20% of overall vacancy. The largest increase in sublease space came in class AAA premises, but overall, the total amount remained insignificant. The first half of the year was characterized by fairly strong deal volume with more than 900,000 sf of notable deals reported in the six-month period. Preleasing activity in new Downtown office developments, particularly MNP Tower, 745 Thurlow and 980 Howe Street, continued to reduce availability. The Downtown market remains supply constrained and there are very limited vacant and available large blocks of space. While fundamentals suggest a landlord’s market, that dynamic may begin to transition slightly as the delivery date of new product approaches.

SNC-Lavalin Inc. (prelease/expansion) 745 Thurlow Street

Vacancy with Space Availability Factor (SAF) and Absorption:

Intact Insurance (renewal/expansion) 999 W. Hastings Street

87,800

Deloitte LLP (renewal)

Bentall 4

85,000

HSBC (renewal)

HSBC Building

71,000

BGC Engineering Inc. (prelease)

980 Howe Street

65,000

Credential Financial Inc. (renewal)

Fortis BC Centre

43,000

Alexander Holburn Beaudin + Lang LLP (renewal)

TD Tower

41,230

Atimi Software Inc. (prelease)

MNP Tower

40,000

City of Vancouver (sublease)

814 Richards Street

36,170

Heenan Blaikie (renewal)

Guinness Tower

29,000

Colliers International (renewal)

Granville Square

25,300

600,000

9.0% 7.0% 6.0% 5.0%

2.3%

1.9%

53,846 5.5%

4.0%

5.2%

3.0% 2.0% 1.0% 0.0%

373,425 2.6% 3.9%

3.3%

400,000

2.9% 85,165

7,753 3.9%

200,000

-168,293

2.0%

0

4.6%

4.2%

-200,000 -400,000

-556,876 2009

-600,000 2010

2011

2012

Mid 2013

2013F

Absorption Absorption (sf) Rate

Vacancy Rate Rate / SAF/ SAF Vacancy

8.0%

-800,000

Manulife Financial kicked off construction of a new 250,000-sf office building

Notable Lease Deals – Mid-Year 2013 TENANT

BUILDING

PWGSC (renewal)

840 Howe Street

SF

120,000 109,000*

Eldorado Gold Corp. (renewal/expansion) Bentall 5

25,000

Dassault Systèmes (prelease)

MNP Tower

24,000

Providence Health Care

1125 Howe Street

21,330

Absorption Trends

Anthem Works Ltd. (renewal)

Bentall 5

20,420

The Downtown market recorded negative absorption in the first half of the year for the first time since 2009. There were no really notable occupancies or noteworthy departures or downsizings. Negative absorption of 168,293 sf in the Downtown core was triggered by a collection of small tenants (primarily in the mining sector) downsizing, relocating or closing. The majority of negative absorption occurred in class AAA (-69,595 sf) and A (-55,986) premises with some additional class C space (-42,033 sf) also returned to the market.

Facebook Inc.

1555 W. Pender Street

19,190

CIBC (renewal)

1380 Burrard Street

18,800

Goldcorp Inc. (expansion)

666 Burrard Street

17,110

PNI Digital Media

425 Carrall Street

16,870

Savvis (renewal)

Harbour Centre

16,580

Silver Wheaton (prelease)

MNP Tower

16,000

Space Availability Factor (SAF)

Cologix

1050 W. Pender Street

15,790

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, decreased to 2.9% (605,611 sf) at mid-year 2013 from 3.3% (709,674 sf) at year-end 2012. SAF is currently at its second highest point since yearend 2002 when the indicator reached 4% (771,025 sf) due to pockets of large-block space coming available in the near term. The actual amount of space currently being marketed (occupied and vacant) in the Downtown core is 7.5% or 1.57 msf.

Teck Resources Inc. (sublease/expansion) Bentall 5

14,140

Teliphone Corp. (sublease)

1550 Alberni Street

13,130

Pilot Gold Corp.

Guinness Tower

12,330

Forbes West Management (renewal)

1140 W Pender Street

12,000

Peer 1 Hosting (renewal)

Harbour Centre

11,970

Tourism Vancouver (renewal)

Waterfront Centre

11,450

New Construction

Lindsay LLP

564 Beatty Street

10,500

The first new Downtown office space since 2011 will be delivered to the market by

Ping Identity

564 Beatty Street

10,500

Vacancy

SAF

Absorption

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

Avison Young Metro Vancouver Office Market Report Mid-Year 2013

*This is in addition to the 101,000 sf that SNC-Lavalin had previously preleased.

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2

Downtown

Vacancy rises to highest point since mid-year 2011

the end of the year. The fully leased Mason Robson Centre at 720 Robson Street will provide 20,000 sf of office space and approximately 13,330 sf of new retail premises. League Financial Partners secured the top three floors of office space, while Old Navy leased the retail component. Reliance Properties will also deliver its substantially renovated property at 564 Beatty Street, which includes a five-storey, 22,000-sf addition atop an existing six-floor, 34,000-sf heritage building, by the fourth quarter of 2013. Lindsay LLP and Ping Identity have taken two floors each. Manulife Financial kicked off its new Downtown office tower with its 16-storey, 250,000-sf development at 980 Howe Street. BGC Engineering will lease 65,000 sf on four floors. The building is set to be completed in the second quarter of 2015. Construction is well underway on four other new Downtown office projects slated for delivery in 2014. Oxford Properties is pouring concrete above grade at MNP Tower, which is almost three-quarters leased more than year away from its scheduled comDeveloper

Building

SF

Completion

Reliance Properties

564 Beatty Street

22,000 (addition)

Q4 2013

A. J. Mason Group

Mason Robson Centre, 720 Robson Street (office/retail)

20,000 (office)

Q4 2013

Westbank Projects/ Telus

Telus Garden, 510 West Georgia Street (mixed use)

465,000 (office)

Q2 2014

Oxford Properties

MNP Tower, 1021 West Hastings Street

275,000

Q4 2014

Aquilini Development and Construction

800 Griffiths Way (mixed use)

180,000 (office) (in two towers)

Q4 2014 (west tower)/ Q4 2016 (east tower)

Cadillac Fairview

725 Granville Street (office/retail)

305,000 (office)

Q4 2014

Bentall Kennedy

745 Thurlow Street (office/retail)

365,000 (office)

Q2 2015

Manulife Financial

980 Howe Street

250,000

Q2 2015

Credit Suisse AG/ SwissReal Group Canada

The Exchange, 475 Howe Street

369,000

Q4 2016

Jim Pattison Developments/ Reliance Properties

Burrard Gateway, 1200-block Burrard Street (mixed use)

Carrera Management 320 Granville Street Corp. Canadian Metropolitan Properties Corp. CLASS

750 Pacific Boulevard (mixed use)

TOTAL RENTABLE (SF)

pletion of year-end 2014. Confirmed tenants of the 35-storey, 275,000-sf office tower include: MNP (72,000 sf), Atimi Software (40,000 sf), Dassault Systèmes (24,000 sf), CBRE (24,000), Regus (16,000 sf), Silver Wheaton (16,000 sf) and Vertex One (8,000 sf). Cadillac Fariview’s redevelopment of the former Sears building at 725 Granville is in full swing. The 305,000-sf office component will comprise the top four floors of the building. Construction is set to wrap in the fourth quarter of 2014. Cranes are swinging at the 22-storey, 500,000-sf Telus Garden site on West Georgia. The 465,000 sf of office space will be primarily occupied by its namesake tenant, Telus, which is leasing 212,000 sf in the lower half of the building and top two floors. Bull Housser & Tupper LLP, which has leased 67,000 sf on three upper floors, is set to occupy the building in September 2014. The building was approximately 60% leased at mid-year 2013, but a well-known tenant is expected to be announced later this year. The Vancouver Canucks will have a new corporate address in 2014, along with the Aquilini Investment Group, both of which will be moving into the west tower of Aquilini Development and Construction’s three-tower development at 800 Griffiths Way. The two organizations will occupy approximately 90,000 sf of the 110,000-sf office component of the tower, which is set for completion in the third quarter of 2014. The east tower, which will comprise an additional 70,000 sf of office, is not scheduled to be complete until the end of 2016 and is not being marketed currently. Bentall Kennedy’s 745 Thurlow development will not be delivered until the second quarter of 2015 but is already 80% leased after SNC-Lavalin opted to expand its initial lease requirement from 101,000 sf to 210,000 sf and occupy floors 3 to 16. McCarthy Tetrault has leased 82,000 sf on the top four floors, leaving just four floors available in the 23-storey building. The Exchange, a 31-storey, 369,000-sf office tower at 475 Howe Street proposed by Credit Suisse AG and SwissReal Group Canada received its development permit in August 2013 after its rezoning application was approved in November 2012. While completion is tentatively scheduled for the fourth quarter of 2016, no anchor tenants had been announced at mid-year 2013. Construction is subject to a prelease commitment of at least 25%. Meanwhile, Jim Pattison Developments and Reliance Properties submitted a revised rezoning application in March 2013 for its proposed mixed-use project, Burrard Gateway. The updated proposal calls for a 150,000-sf, 14-storey office tower and a seven-storey commercial podium comprising 100,000 sf of office space for sale or lease. It is anticipated that the project could go to public hearing this fall. Carrera Management’s proposal for a 32-storey, 376,000-sf office tower at 320 Granville Street was approved in May 2013 by the City of Vancouver’s urban design panel after Carrera’s first submission was not supported. The project’s updated rezoning application, which took under consideration the panel’s initial findings, remains with the city.

Market Forecast 250,000 (office)

Proposed

376,000

Proposed

350,000 (commercial)

Proposed



TOTAL VACANCY (SF)

Rental rates will remain stable for the next six to 12 months as questions around sufficient demand minimize upward pressure on rates. Most developers of new inventory are well positioned to defend rental rate expectations given recent leasing activity. There are no dramatic changes anticipated in the market in the next six to 12 months, but the market’s reaction to upcoming large-block vacancies will be telling. An incremental increase in vacancy is likely as some larger blocks of space become physically vacant and if the commodity cycle remains stalled, but developers have done well during the past six to nine months with new or expanded lease commitments.

TOTAL VACANCY (%)


SAF (SF)

SAF (%)

NET RENTAL RATE (PSF)

GROSS OCCUPANCY COST (PSF)

AAA

3,596,476

26,873

68,595

95,468

2.7%

-69,595

117,580

3.3%

$32 - $50

$51 - $74

A

7,459,598

211,145

73,797

284,942

3.8%

-55,986

269,163

3.6%

$22 - $42

$40 - $64

B

6,801,498

270,695

65,128

335,823

4.9%

-679

176,427

2.6%

$18 - $36

$32 - $54

C

3,350,043

210,215

38,946

249,161

7.4%

-42,033

42,441

1.3%

$15 - $26

$27 - $42

21,207,615

718,928

246,466

965,394

4.6%

-168,293

605,611

2.9%

-

-

Total


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3

Yaletown

Availability rises slightly as vacancy remains tight

Vacancy Trends Vacancy remained stable in the trendy office and entertainment district, slipping to 4.9% at mid-year 2013 after reaching 5% six months earlier, but up slightly from 4.7% a year ago. Overall vacancy has been 5% or less since year-end 2010. Class A vacancy slid from 6.6% at year-end 2012 to 4.2% largely due to Avigilon Corp. occupying 10,000 sf at 858 Beatty Street and McNeill Nakamoto taking 2,670 sf at 860 Homer Street, where the developer also converted 2,570 sf to amenity space. Class A vacancy has tightened significantly since mid-year 2012 when the rate was 6.9%. Class B vacancy dipped to 2.4% from 3.2% at year-end 2012 (and 5% a year earlier) due largely to the relocation and expansion of Select Wines at 1122 Mainland Street and the relocation of Bayleaf Software to 845 Cambie Street. Bayleaf’s decision to vacate 5,680 sf of class C space at 948 Homer Street was instrumental in class C vacancy spiking to 10.9% from 6.7% six months earlier. A variety of smaller tenants vacating class C space (approximately 6,640 sf ) along Cambie Street also contributed to the rise in class C vacancy, which had been just 2.3% only 12 months ago. The overall space availability factor (SAF) remained very tight at 1.5% (or 29,400 sf ) with virtually nothing available in class B (2,284 sf ) and just 1.7% (or 9,618 sf ) in class A. The SAF was approximately 3.7% (or 17,500 sf ) in class C premises.

Absorption Trends

Recently purchased by Triple F Investment Corp., 1152 Mainland Street features exceptionally high ceilings and exposed brick-and-beam construction.

class C properties but there is virtually no vacant sublease space available in any class (2,422 sf in total). Mason Horvath is marketing 6,400 sf of occupied space for sublease at 1085 Homer Street. Some relief (in the form of office space currently occupied by BC Hydro) is headed to the market in September when more than 10,500 sf becomes available at 788 Beatty Street.

Positive absorption of class A and B space by Avigilon, McNeill Nakamoto, Select Wines and Bayleaf Software offset significant negative absorption of nearly 20,000 sf recorded in class C premises during the first half of 2013. With more than 51,000 sf of class C space vacant (more than double that found in either class A and B), significant future absorption is likely to occur in class C premises. This does not mean tenants are restricted to

New Construction

Vacancy with Space Availability Factor (SAF) and Absorption:

Office vacancy in Yaletown is expected to remain tight with existing and renovated product being absorbed in a timely fashion and producing continued downward pressure on vacancy. The result will be upward pressure on rental rates, particularly for well-improved premises in superior quality buildings. Most lease deals are likely to involve the relocation and/or expansion of existing Yaletown tenants.

300,000

14.0%

200,000

10.0%

181,330 39,047

8.0%

1.9%

6.0%

4.0%

5.1%

4.0%

6,785 0.5% 5.0%

4.3%

2,011

4.9%

2009

2010

2011

Vacancy

2012 SAF

100,000 0 -100,000

1.5%

2.0% -289,407 0.0%

45,576

1.2% 2.6%

Mid 2013F 2013 Absorption

-200,000

Absorption(sf) Rate Absorption

Vacancy Rate / SAF Vacancy Rate / SAF

12.0%

0.6% 12.1%

-300,000 -400,000

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

CLASS

TOTAL RENTABLE (SF)



No new construction is currently planned for Yaletown, but renovations at 1028 Hamilton Street will provide 18,000 sf of fully renovated premises over three floors as well as 6,000 sf of basement premises when completed in August 2013.

Market Forecast


BUILDING

Avigilon Corp. (expansion)

858 Beatty Street

Select Wines (relocation)

1122 Mainland Street

5,600

Bayleaf Software (relocation)

845 Cambie Street

4,460

McNeill Nakamoto

860 Homer Street

2,670

Urban Systems (sublease & expansion)

1090 Homer Street

2,420

TOTAL VACANCY (SF)

TOTAL VACANCY (%)


SF

10,000

SAF (SF)

SAF (%)



A

552,938

23,006

0

23,006

4.2%

13,320

9,618

1.7%

$29 - $35

$42 - $49

B

998,357

21,630

2,422

24,052

2.4%

8,145

2,284

0.2%

$24 - $28

$36 - $41

C

471,949

51,297

0

51,297

10.9%

-19,454

17,500

3.7%

$19 - $23

$29 - $34

2,023,244

95,933

2,422

98,355

4.9%

2,011

29,402

1.5%

-

-

Total


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4

Vancouver - Broadway

Positive absorption slows as vacancy climbs

Vacancy Trends Vacancy in Vancouver-Broadway jumped to 4.7% at mid-year 2013 from 3.3% at yearend 2012 and 3.4% a year earlier. Vacancy in the submarket reached its highest point since mid-year 2011. Several large vacancies emerged as tenants departed the marketplace and others downsized. Class A vacancy jumped to 4.8% at mid-year 2013 from 2.9% a year earlier. Class B vacancy tightened to 4% from 4.3% at mid-year 2012, while class C vacancy spiked to 6.3% from 3.7% a year previous. Deal velocity remained muted in the first six months of 2013.

Vacancy and Absorption Graph 6.0% 5.2% 5.2% 200,047

4.0%

200,000

4.7%

4.6%

3.9%

3.0%

100,000

2.0% 1.0% 0.0%

150,000

3.3%

52,058

2009

5,437

34,752

38,031 2010

2011

2012

Vacancy

Mid 2013 Absorption

2013F

Absorption Rate Absorption (sf)

Vacancy Vacancy Rate Rate

5.0%

250,000 229,994

50,000 0

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

Absorption Trends Six-month absorption in Vancouver-Broadway remained slightly positive overall as positive absorption in class A properties was able to offset negative absorption in class B and C premises. It was the second year in a row that positive absorption was recorded in the first half after four years of negative absorption registered in the first half (2008 to 2011). Columbia College and Hootsuite both occupied their new premises, while health care tenants such as Vancouver Coastal Health and the Provincial Health Service Authority consolidated facilities in Burnaby and QLT Inc. and Symcor Services Inc. downsized.

New Construction Onni Group’s Central development remains on schedule and is set for completion in the second quarter of 2014. Canada Border Services Agency will occupy all 106,000 sf of office space in the eight-storey office building, which forms part of a larger mixeduse project that includes retail and residential uses. The steel framing for Bentall Kennedy’s four-storey, 191,000-sf Broadway Tech Centre 6 has been raised and construction is ahead of schedule with completion now slated for the second quarter of 2014. Golder Associates, which had previously leased the second, third and fourth floors,

Bentall Kennedy is readying plans for the second phase of its Broadway Tech Centre development, which calls for five buildings built in phases.

elected to take an additional 17,000 sf on the first floor, for a total of approximately 152,000 sf. Construction of PCI Group’s Marine Gateway is well underway with the 14-storey, 250,000-sf office building scheduled for summer 2015 completion. A lead tenant has yet to be secured. A new 60,358-sf, four-storey office building at the Centre for Digital Media campus on Great Northern Way has been proposed. It is scheduled to be completed in the summer of 2015. PCRE Group remains in a holding pattern with its Renfrew Business Centre, Phase II. The seven-storey, 149,000-sf office building requires a prelease commitment to kick off. BlueSky Properties’ 10-storey, 96,600-sf Broadway Commercial development also remains on pause until a prelease commitment can be secured. The rezoning application for 3030 East Broadway, Bentall Kennedy’s five-building, 962,300-sf office park development adjacent to its Broadway Tech Centre West campus, was approved in June.

Market Forecast Rental rates will remain stable for the next six to 12 months. There is currently a good mix of product (especially for larger tenancies) in the market. Assuming demand rematerializes, additional deal volume could result. Vacancy is anticipated to remain steady and then tighten in the next six to 12 months as tenants address expansion requirements. Both Central and Broadway Tech Centre 6 are slated for delivery in the next 12 months. PCI’s Marine Gateway development will deliver another 250,000 sf in 2015. Several other projects remain either in process or awaiting prelease commitments. Developer

Building

SF

Completion

Onni Group of Companies

Central, 1553-1577 Main Street (mixed use)

106,000 (office)

Q2 2014

Bentall Kennedy

Broadway Tech Centre 6

176,000 (office)

Q2 2014

PCI Group

Marine Gateway on Canada Line (mixed use)

250,000 (office)

Q3 2015

BlueSky Properties

Broadway Commercial, 984 West Broadway

80,000 (office)

Awaiting prelease commitment

Bentall Kennedy

3030 East Broadway (five buildings)

962,300

Proposed

Mountain Equipment Co-op

1077 Great Northern Way

176,980

Proposed

GNW Trust

1933 Fraser Street (501 Great Northern Way)

60,358

Proposed


BUILDING

UBC Finance & Administration

6190 Agronomy Road

35,000

Read Jones Christoffersen (renewal)

1285 West Broadway

23,420

SF

RBC Insurance (renewal)

2985 Virtual Way

16,000

InterVista Consulting Inc. (renewal)

1200 West 73rd Avenue

10,000

Transcontinental Media (renewal)

2608 Granville Street

CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

A

3,824,039

172,919

11,500

184,419

4.8%

B

2,133,345

72,963

13,339

86,302

C

723,993

45,680

0

6,681,377

291,562

24,839

Total

Renfrew Business Centre Awaiting prelease 149,000 (office) phase II (2665 Renfrew Street) commitment

PCRE Group

TOTAL VACANCY (%)



30,879

$24 - $30

$38 - $45

4.0%

-22,959

$18 - $25

$32 - $39

45,680

6.3%

-2,483

$15 - $19

$27 - $29

316,401

4.7%

5,437

-

-



7,700

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5

Burnaby Year-over-year vacancy tightens despite departure of major tenants Vacancy Trends Vacancy was unsettled in the Burnaby office market, rising to 8.9% at mid-year 2013 from 7.8% at year-end 2012. However, the rate is still lower than the 9.6% recorded a year earlier. Class A vacancy rose to 7.5% from 6.2% at year-end 2012 due primarily to Nokia closing its R&D facility and TransLink moving out of Metrotower II to its new headquarters in New Westminster. Class B vacancy was virtually unchanged from yearend 2012, but down significantly from 14.8% a year earlier. Class C vacancy climbed to 18.5% from 15.9% six months earlier, but remained lower than the 20.6% recorded a year ago. Sublease space was at its second lowest level since year-end 2007. First-half deal velocity was modest as tenant activity increased after the provincial election.

Absorption Trends Negative first-half absorption of 104,046 sf was almost entirely the result of the departure of Nokia and TransLink. The majority of negative absorption occurred in class A premises, while negative absorption in class C was driven by the closing of offices by Telus and the BC Ministry of Transportation and Infrastructure. Burnaby experienced first-half negative absorption for the first time since 2010.

Vacancy and Absorption Graph 13.2% 212,072

Vacancy VacancyRate Rate

12.0%

300,000

248,017

250,000 200,000

10.0% 8.0% 6.0%

150,000 10.6%

8.5%

8.9%

61,906

7.8%

8.3%

-31,068

4.0% 2.0% 0.0%

2009

2010

2011

2012

Vacancy

Mid 2013 Absorption

0 -50,000 -100,000

-104,046

-139,781

100,000 50,000

AbsorptionRate (sf) Absorption

14.0%

-150,000 2013F

-200,000

Slated for completion in April 2014, Metrotower III will offer 411,000 sf of new class A office space in the Burnaby market. net effective rents as a result of the rise in vacancy and new construction. This may be somewhat mitigated by Burnaby being the beneficiary of a tight Downtown market and a lack of large-block options in the core. Lower occupancy costs associated with the suburban market will also attract tenants moving forward. Vacancy will likely increase with the delivery of new product in early 2014, but positive absorption will remain as tenants take advantage of significant leasing opportunities. Developer

Building

SF

Completion

Ivanhoé Cambridge

Metrotower III

411,000

Q2 2014

230,000 (office)

Q3 2015

Kingswood Capital

Solo District, phase II (mixed use) Discovery Place Business Park, phase III

50,000

Proposed

Sears Canada

4750 Kingsway

Two office towers

Proposed

Appia Group

Notable Lease Deals – Mid-Year 2013


New Construction Ivanhoé Cambridge’s 29-storey, 411,000-sf Metrotower III remains on schedule for completion in April 2014. During the next 12 months, the building will welcome Stantec Consulting Ltd., which will occupy 65,000 sf on approximately four floors, and consultancy Hemmera , which leased 25,000 sf over two floors. Construction of phase 2 of Appia Group’s Solo District, which includes 12 floors of 230,000 sf of office space in a mixed-use tower, has commenced despite the absence of a lead office tenant. Targeted completion date is mid-2015. Phase III of Discovery Place Business Park remains in the planning stages. The fourstorey, 50,000-sf office development by Kingswood Capital is dependent on an anchor tenant to launch the project. Shape Properties’ redevelopment of Brentwood Town Centre will also offer new commercial office opportunities in the municipality.

TENANT

BUILDING

SF

Teradici Corp. (renewal)

4621 Canada Way

38,420

CBV Collection Services

4664 Lougheed Highway

35,000

SNC-Lavalin

2700 Production Way

25,300

Hemmera

4730 Kingsway

25,000

Teradici Corp.

4601 Canada Way

24,350

Traction on Demand

2700 Production Way

22,000

Ventana Construction

3875 Henning Drive

20,000

Bron Studios

5542 Short Street

14,800

Icron Technologies (renewal) 4664 Lougheed Highway

10,950

Market Forecast

ISL Engineering & Land Services (renewal)

4190 Lougheed Highway

7,200

Rental rates may decline as there will be increased pressure on landlords to reduce

CGI

4601 Canada Way

6,500

CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

A

6,163,078

446,566

17,037

463,603

7.5%

B

2,081,671

177,870

5,721

183,591

C

937,068

173,585

0

9,181,817

798,021

22,758

Total

TOTAL VACANCY (%)



-82,260

$18 - $28

$29 - $43

8.8%

3,207

$14 - $18

$25 - $32

173,585

18.5%

-24,993

$10 - $13

$21 - $26

820,779

8.9%

-104,046

-

-



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6

Richmond

Office market’s slow recovery remains intact

Vacancy Trends Richmond’s office market continued to improve with vacancy decreasing to 17.3% at mid-year 2013, the vacancy’s lowest point since year-end 2008 and down from 21.8% a year ago. The total amount of vacant space in the market is at its lowest point since yearend 2009. Vacancy in class A and B properties tightened with class A vacancy dropping below 20% for the first time since year-end 2008. Class B vacancy fell to 12%, the lowest point since mid-year 2010. Richmond tenants have soaked up much of the available sublease space, leaving just 37,687 sf, the lowest since year-end 2006. Leasing activity has generally stabilized with class A properties recording the majority of activity.

Absorption Trends First-half positive absorption of 80,873 sf in 2013 marked the greatest amount of firsthalf absorption since 2008. The majority of the absorption took place in class A properties, primarily due to Talent Technology Corp. (23,510 sf) and Premium Brands (24,790 sf). More than 23,000 sf of class B space was absorbed while class C properties recorded slight negative absorption of 7,673 sf.

New Construction Developers in Richmond remained hesitant to bring new office projects forward in a market that until mid-year 2012 had recorded vacancy in excess of 20% annually since 2009. The proposed Sea Island Business Park adjacent to the Templeton SkyTrain station at the airport, remains in a holding pattern after the Vancouver International Airport Authority ultimately selected a preferred proponent (that it has yet to disclose publicly) after short-listing four conceptual proposals that emerged from its original RFP issued in 2011. The airport is currently conducting a traffic impact study in

Vacancy and Absorption Graph 30.0%

150,000

20.0%

24.6% 20.2%

23.3%

10,124

100,000

110,703 80,873 19.3%

15.0%

44,996 17.3%

16.3%

0 -50,000

10.0%

-100,000 -146,554

5.0% 0.0%

50,000

Absorption (sf) Absorption (sf)


25.0%

-150,000

-167,288 2009

2010

2011

Mid 2013 Absorption

2012

Vacancy

2013F

-200,000



BUILDING

Premium Brands Holdings

Airport Executive Park #7

24,790

Talent Technology Corp.

CSA Building

23,510

BBM Canada

Crestwood Corporate Centre #2

11,600

Semcan Inc.

3031 Viking Way

10,000

Graymont Ltd. (expansion)

Airport Executive Park #7

8,680

PCL Construction

Crestwood Corporate Centre #10

5,830

CLASS

TOTAL RENTABLE (SF)

A B C Total

SF

TOTAL VACANCY (SF)

Richmond office buildings such as Airport Executive Park #6 have benefited from the ongoing improvement in the market’s vacancy rate. conjunction with the City of Richmond that accounts for not just the business park, but the new McArthurGlen Designer Outlet Mall and Canada Post’s new processing facility. YVR wants to ensure airport access is not impeded by the developments. The scope of the phased project remains in flux with no deadline set for construction. The traffic impact study is set to be finished by the end of 2013. The proposed Ampri International Gateway Centre remains with the city, awaiting completion of a rezoning application and issuance of a development permit. The three-building project calls for two hotels and a 12-storey, 105,000-sf office tower, which would be built in the second phase, when sufficient demand warranted. New Continental Properties (NCP) has filed a rezoning application for a three-building development called Global Education City (GEC) on Bridgeport Road and Sea Island Way that calls for a nine-storey, 100,000-sf office/campus building, a 15-storey, 200,000sf student dormitory, and a six-level parkade and amenity building as well as groundoriented retail/commercial units. NCP has partnered with CIBT Education Group.

Market Forecast Richmond’s office market continued to recover from the downturn with vacancy steadily trending downward since year-end 2010 when it peaked at 24.6%. With vacancy at 17.3% at mid-year 2013 and activity slowly returning to the market (particularly in class A properties), it is anticipated that vacancy will continue to decrease. Rental rates are expected to remain flat for the next six to 12 months as landlords continue to offer inducements to attract tenants to the market and excellent options remain for those businesses seeking quality premises at reasonable rates. Developer

Building

SF

Completion

YVR

Sea Island Business Park (office/hotel) at Templeton SkyTrain station

Still to be determined

Proposed

Ampar Ventures Ltd.

Ampri International Gateway Centre (office/hotel)

105,000 (office)

Proposed

100,000 (office/campus)

Proposed

Global Education City New (8320, 8340 & 8440 Bridgeport Continental Way; and 8311 & 8351 Properties Inc. Sea Island Way



TOTAL VACANCY (%)

2,891,156

498,829

35,087

533,916

18.5%

972,346

116,364

0

116,364

12.0%

332,936

74,871

2,600

77,471

23.3%

4,196,438

690,064

37,687

727,751

17.3%





65,486

$16 - $20

$26.50 - $30.50

23,060

$12 - $14

$22 - $24

-7,673

$9 - $12

$16.50 - $19.50

80,873

-

-

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7

Surrey

Quality options on the rise for tenants

Vacancy Trends Office vacancy in Surrey spiked to 16.7% at mid-year 2013, up from 9.2% at mid-year 2012, as three substantial tenants, Coast Mountain Bus Company, the RCMP and Westland Insurance vacated the lease market. Surrey’s office vacancy rate has more than doubled since mid-year 2011. The amount of total vacant space available at midyear 2013 is at its highest point since year-end 2004. Sublease space also climbed to its highest point on record. Minimal deal velocity has resulted in many quality options remaining available for tenants with opportunities still available at Station Tower, Central City and Guildford Commerce Court. (Note: 104th Avenue Centre at 104th Avenue and 142nd Street is not included in Avison Young statistics. The 260,000-sf building, originally designed as a cultural centre and then subsequently marketed to large office users, has been vacant since completion in 2005.) 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

100,000

85,074

17.8%

16.7% -6,879

-47,226

-11,783

8.8%

3,040

-100,000 -153,390

2.5% 2010

2011

0 -50,000

11.5%

6.1%

2009

50,000

2012

Vacancy

Mid 2013F 2013 Absorption

Absorption (sf) (sf) Absorption


Vacancy and Absorption Graph

-150,000 -200,000


Absorption Trends Significant first-half negative absorption of more than 153,000 sf was the result of the RCMP, Coast Mountain Bus Company and Westland Insurance vacating their leased premises in Surrey. The majority of the negative absorption (-90,712 sf) occurred in class B premises, primarily driven by the RCMP decamping to its new purpose-built headquarters. The departure of Coast Mountain Bus Company also fuelled significant negative absorption (-59,360 sf) in class A premises. A number of smaller businesses also gave back space in the first half.

Gateway Place offers 100,000 sf of office/ retail space in phase one of the mixed-use development. Surrey City Development Corporation (SCDC) has joint ventured with KNV Chartered Accountants to construct Southpointe 99. The four-storey, 55,000-sf building A is scheduled for completion in the second quarter of 2014 and is currently 40% preleased.

Market Forecast Rising vacancy will likely exert downward pressure on rates for the next six months and trigger greater incentives from landlords seeking to attract new tenants and retain those who are renewing. Vacancy is anticipated to rise through 2013 with the expected departure of additional tenants in the second half. There remain a number of new developments awaiting prelease commitments to commence construction that are unlikely to proceed in the near term. Strata options are becoming more common in Surrey as some new developments target smaller users (1,500 sf -2,500 sf) such as medical and legal offices. Langley is increasingly offering competing office product and in the mid-term could provide a moderate challenge to Surrey office development. Developer

Building

SF

Completion

Value Property Group

Centre of Newton, phase II, 7327 137th Street (office/retail)

37,500

Q3 2013

SCDC/KNV Chartered Accountants

Southpointe 99 (building A), 15303 31st Avenue

55,000

Q2 2014

PCI Group

9900 King George Boulevard (office/retail)

164,000 (office)

Q4 2015

Century Group

3 Civic Plaza (mixed use)

50,000

Q3 2016

Landview Construction

Guildford Gateway, 10161 153rd Street

103,700

Awaiting prelease commitment

Bosa Properties

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

60,000

Planning

Circadian Projects

9677/9681 King George Boulevard

178,000

Proposed

New Construction Value Property Group’s four-storey mixed-use project, Centre of Newton II, will include 37,500 sf of office space and retail on the ground floor. The LEED Gold building is set for completion in August and did not have an anchor office tenant at the time of publication. PCI Group has commenced construction on Coast Capital Savings’ new headquarters at 9900 King George Highway. The 190,000-sf building will be primarily occupied by Coast Capital, which has leased approximately 70% of the 164,000 sf of office space. The project is slated for completion in the fourth quarter of 2015. Bosa Properties’ two-phase Gateway Place project at the Gateway SkyTrain station will launch with a four-storey, mixed-use development that will feature 60,000 sf of office space and approximately 39,000 sf of retail. Phase one construction is set to start in the fourth quarter of 2013 and complete in approximately 24 months.


BUILDING

Enterprise Holdings Inc.

13160 88th Avenue

10,230

Innovative Fitness

15303 31st Avenue

8,500

CEFA

10172 152A Street

7,300

ICBC (renewal)

7565 132nd Street

6,370

CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

TOTAL VACANCY (%)

A

1,718,656

149,185

77,152

226,337

13.2%

B

601,010

152,968

0

152,968

25.5%

C Total




-59,360

$16 - $24

$26 - $34

-90,712

$13 - $16

$23 - $26

$11 - $13

$21 - $23

-

-

205,629

19,672

22,673

42,345

20.6%

-3,318

2,525,295

321,825

99,825

421,650

16.7%

-153,390


SF

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8

New Westminster

Positive absorption powered by TransLink head office move

Vacancy Trends Office vacancy in New Westminster slid to 8.8%, the lowest office vacancy rate recorded since mid-year 2007. Vacancy had temporarily spiked to 20.8% at year-end 2012 due to the delivery of The Brewery District, but it has since been occupied by TransLink, Coast Mountain Bus Company and Transit Police. Vacancy has been trending downwards since 2011. Several significant renewals in the first half coupled with the lease-up of the Land Titles Building at 88 6th Street and occupancy of The Brewery District have reduced vacancy to near historic lows. Steady but minimal deal velocity has resulted in excellent lease opportunities remaining in The Brewery District, Queen’s Park West, Queens Court and the Royal City Centre.

Absorption Trends With more than 168,000 sf of positive absorption in the first half of 2013 due to the occupancy of The Brewery District and the leasing up of the Land Titles Building, New Westminster posted its strongest first-half positive absorption on record. The delivery of Queen’s Park West in the second half of 2013 and Merchant Square in the first half of 2014 will offer insight into whether the market can continue to absorb new office product while existing leasing opportunities in Queens Court and the Royal City Centre remain.

Developer

Building

SF

Completion

Uptown Property Group

Queen’s Park West, 500 6th Avenue (mixed use)

20,000 (office)

Q3 2013

City of New Westminster

Merchant Square, 1 Eighth Street 137,000 @ Columbia (mixed use) (office)

Q2 2014

Bentall Kennedy

Adjacent to Braid Street SkyTrain Up to station (part of mixed-use 400,000 development) (office)

Proposed

Uptown Property Group’s Queen’s Park West is set for completion in August and features 20,000 sf of office space and 6,500 sf of retail.

Vacancy and Absorption Graph 25.0%

200,000 168,833 20.8%

150,000

15.0% 10.0% 5.0% 0.0%

100,000 10.7%

-6,795 2009

9.7% 15,446 2010

11.8%

52,537 8.8%

8.5%

-33,147 2011

50,000 33,473

2012

Vacancy

Mid 2013 Absorption

2013F

0

Absorption Rate (sf)

Vacancy RateRate Vacancy

20.0%

-50,000


New Construction With TransLink, Coast Mountain Bus Company and Transit Police taking occupancy of their new headquarters at The Brewery District (building one) in the first half of 2013, the tale of New Westminster’s largest commercial real estate development in recent memory is almost complete. Only a single floor comprising 29,400 sf remains vacant in building one. Building three, a 27,000sf, build-to-suit development for the Health Sciences Association, remains under construction and is scheduled for completion in spring 2014. Building two (phase one) was completed in fall 2011. Uptown Property Group’s Queen’s Park West development is also nearing completion. The four-storey building comprises 20,000 sf of office space and 6,500 sf of retail premises. Approximately 25% of the office space has been leased. Construction is set to wrap up by August. CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

Delivery of the City of New Westminster’s Merchant Square has been pushed back to spring 2014. The 13-storey, mixed-use tower remains without a lead office tenant. More activity around the Bentall Kennedy site adjacent to the Braid Street SkyTrain station is anticipated in the second half as renewed focus and access improvements work to push the project beyond the scope of the two office buildings approved for the property that remain unbuilt.

Market Forecast Rental rates are anticipated to remain stable with some upward pressure in class B premises as supply tightens and class A rates remain steady. Tenants will likely continue to carefully monitor market conditions as Queen’s Park West is delivered, and will pay particular attention to news of any leasing activity at Merchant Square. Vacancy will likely stabilize during the next six months with limited new product and some existing space coming back to the market. The impact of Merchant Square has yet to be seen pending any leasing announcements. New Westminster’s office market should remain steady until the end of 2013 with several quality large options coming available.


BUILDING

SF

New Westminster School District (renewal)

88 Tenth Street (Columbia Square Plaza)

20,000

Electro Sonic (renewal)

625 Agnes Street

7,400

Sands & Associates

500 6th Avenue

4,500

Claims Pro (renewal)

668 Carnarvon Street

3,000

ATF Canada Corp. (renewal)

625 Agnes Street

1,920

TOTAL VACANCY (%)




A

624,114

54,358

0

54,358

8.7%

178,111

$16 - $26

$28 - $38

B

700,684

54,195

0

54,195

7.7%

6,364

$12 - $20

$21 - $29

C Total

207,774

26,297

0

26,297

12.7%

-15,642

$11 - $12

$19 - $20

1,532,572

134,850

0

134,850

8.8%

168,833

-

-


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9

North Shore

Class A availability pushes up overall market vacancy

Vacancy Trends Office vacancy in North Vancouver edged up to 10.4% at mid-year 2013, rising from 9.6% six months ago and 8.7% a year earlier, to reach its highest point since year-end 2006. Larger tenants such as ICBC and Newmont Mining vacated class A premises in the first half, which pushed up class A vacancy to 8.6% from 5.1% at year-end 2012, but class A vacancy remained relatively stable compared with a year earlier. Class B vacancy tightened to 10.7% at mid-year 2013 compared with 14.1% six months earlier (but still up from 9.4% at mid-year 2012) thanks to positive absorption registered at Capilano Business Park. Deal velocity in West Vancouver was limited by a lack of available product and existing tenant satisfaction. Deal velocity in North Vancouver slowed with a few surges of activity throughout March and April and into May. Sublease vacancy remained stable with just 7,064 sf, the most since year-end 2011.

Vacancy and Absorption Graph

10,000

Vacancy RateRate Vacancy

10.0% 8.0%

-9,813 7.8%

10.4% -2,631 9.6% -11,405 -8,891 8.2% 8.1%

6,807 10.8%

-20,000

6.0%

-30,000

4.0%

-40,000

2.0% 0.0%

-10,000

-50,000

-56,772 2009

2010

2011

2012

Vacancy

Mid 2013 Absorption

2013F

55,000 sf of retail premises and 106,000 sf of hotel. Providing a development permit is issued for phase one, construction is anticipated to break ground in late 2015 and be complete by mid 2017. The first phase would include approximately 60,000 sf of office space. The project is estimated to take 10 to 15 years to fully develop.

Market Forecast

0 Absorption (sf) Rate (sf) Absorption

12.0%

Onni Group is developing a new mixed-use project that will feature 78,000 sf of office space when completed in 2017.

It is anticipated that business confidence will solidify and companies will begin to execute on the expansion and relocation plans many had on hold during the past 18 months. Momentum is likely to build through the third quarter of 2013 with activity remaining strong into 2014. The proposed mixed-use development at Harbourside will remain a topic of conversation as growth often comes with challenges, particularly in the near term. The phased development will benefit local business in the medium to long term and will remain one of the premier commercial districts on the North Shore.

-60,000


Absorption Trends Negative absorption of 11,405 sf in the first half of 2013 marked the second consecutive first-half decline and the largest return of space to the market since the first half of 2009. The negative absorption occurred entirely in class A premises and was only offset by strong positive absorption of more than 16,000 sf in class B space. Landlords have been willing to induce businesses through tenant improvement allowances and free rent, which has kept rental rates stable, but the net effective rate of return landlords have been willing to accept has shifted downwards.

Developer

Building

SF

Completion

Citimark/Darwin Construction

Dollarton Business Park, Building C , 197 Forester Street

32,780 (office)

Q3 2013

Wesgroup Properties/ North Shore Credit Union

1250 Lonsdale Avenue (mixed use)

60,000 (office/retail)

Q4 2013

Onni Group

1308 Lonsdale Avenue (mixed use)

78,720 (office)

Q2 2017

Concert Properties

801 Harbourside Drive (mixed use)

210,000 (office)

Proposed

Notable Lease Deals – Mid-Year 2013

New Construction

TENANT

BUILDING

Construction of the four-storey, 32,780-sf Building C at Dollarton Business Park, which has units available for sale or lease, is set for completion in August. Construction on the North Shore Credit Union’s new headquarters at 1250 Lonsdale continues, with construction scheduled to wrap by the end of the year. The 60,000-sf office/retail project forms part of a larger mixed-use development.

Piteau Associates

788 Copping Street

Atlantia Holdings Inc. (expansion)

Capilano Business Park

6,890

Norson Construction Ltd.

Capilano Business Park

6,610

Buckland & Taylor Ltd. (expansion)

788 Harbourside Drive

4,120

Read Media Inc.

267 West Esplanade

3,500

Anaïd Productions(renewal)

889 Harbourside Drive

3,440

Spatial Dimension Canada Inc.

221 West Esplanade

2,480

C&C Property Group Ltd.

171 West Esplanade

2,460

Living Well Home Care Services

1221 Lonsdale Avenue

2,450

Onni Group is proceeding with a mixed-use development nearby at 1308 Lonsdale that includes 78,720 sf of office space in a four-storey building. The office space will be available for occupancy by the second quarter of 2017. Concert Properties’ master planned community at 801 Harbourside Drive is in for rezoning with a public hearing anticipated in late summer/early fall. The four-phase development would ultimately include approximately 210,000 sf of office space, CLASS

TOTAL RENTABLE (SF)



TOTAL VACANCY (SF)

TOTAL VACANCY (%)



SF

10,740


A

793,013

60,999

7,064

68,063

8.6%

-27,891

$20 - $27

$31 - $43

B

481,395

51,618

0

51,618

10.7%

16,066

$15 - $19

$23 - $31

C

203,172

33,869

0

33,869

16.7%

420

$13 - $16

$19 - $26

1,477,580

146,486

7,064

153,550

10.4%

-11,405

-

-

Total


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10

Special Feature

Above: Oakridge Centre redevelopment will include 424,000 sf of office space; Above right: Redevelopment of Brentwood Town Centre contemplates at least one office tower; Below right: Broadway Tech Centre East at 3030 East Broadway will offer five new office buildings totalling 962,300 sf

Suburban office space sprouting up in mixed-use developments throughout Metro Vancouver

G

one are the days when sprawling business parks sprouted up in far-flung suburban locations that lacked transit connections or other amenities. With all the attention focused on the numerous office developments under construction in Vancouver’s Downtown, the size and scope of mixed-use projects incorporating office space that are proposed for Metro Vancouver’s suburban markets could be overlooked.

There is more than 1.8 million square feet (msf ) of office space currently under construction in Downtown Vancouver with almost another 1 msf in process. In comparison, there is more than 1.6 msf currently under construction in the suburbs, but that does not take into account a number of substantial mixed-use projects that remain before their respective municipal councils such as the redevelopment of Oakridge Centre in Vancouver and Brentwood Town Centre in Burnaby. The proposed Sears redevelopment at Metrotown at Metropolis also includes two office towers. Other large mixed-use suburban developments that have been accounted for by Avison Young include Broadway Tech Centre East, Burrard Gateway and Marine Gateway in Vancouver, Solo District in Burnaby, and Merchant Square and Bentall Kennedy’s 38-acre Braid Street site in New Westminster. Ivanhoé Cambridge and Westbank have applied to rezone the Oakridge Centre site in Vancouver. The application proposes more than 4.5 million square feet (msf ) of development, including 1.43 msf of retail space, 424,260 sf of office premises and almost 2.7 msf of residential development. This application represents a significant expansion of office uses on the site. According to project proponents, the “existing building at 41st and Cambie Street will be linked to a new office podium that features a mix of typical and large floorplates and maintains the current medical and dental facilities. “The second office/residential tower is located on Cambie Street near the Canada Line station with direct access to the street and interior retail amenities. A third location on pedestrian High Street will be linked to the neighbourhood plaza and have direct access to the rooftop commons and amenities.” These three spaces combined will nearly triple the amount of office space currently at Oakridge Centre. The Oakridge-West 41st SkyTrain station on

the Canada Line would connect the redeveloped commercial/residential node to the regional public transit network. The redevelopment of Brentwood Town Centre by Shape Properties will occur in four phases and preliminary plans call for at least one 30- to 40-storey office tower (possibly two) to be built based on demand. The first phase of the redevelopment encompasses approximately eight acres of land on the southwest corner of the property and is set for completion by mid-2014. The redevelopment includes the integration of Brentwood Town Centre station, which forms part of SkyTrain’s Millennium Line. The rezoning application for Bentall Kennedy’s Broadway Tech Centre East campus-style development was approved in June 2013 and permits five buildings totalling 962,300 sf. The buildings would range from four to six storeys in height. The business park is located a short distance from both the Renfrew and Rupert SkyTrain stations on the Millennium Line. Appia Development’s Solo District will feature a 12-storey, 230,000-sf class A office building utilizing 20,000-sf floor plates and is located close to the Brentwood SkyTrain station. The office space, which is part of a residential tower, is under construction as part of the second phase of the development. PCI Group’s Marine Gateway includes a 14-storey, 250,000-sf office building, which is also currently under construction. Overall suburban vacancy in Metro Vancouver has remained relatively stable since 2008 when the rate hit a low of 7.2% at mid-year and then rose to a high of 11.2% at mid-year 2011. Since then, suburban vacancy had trended downwards until mid-year 2012 when it started to reverse course and subsequently rose to 10.1% at mid-year 2013. Preleasing has historically occurred at far lower levels in suburban office developments compared with projects Downtown. While slightly more than half of current Downtown construction is already preleased, just one-third of current suburban office space is preleased. At mid-year 2013, there were no prelease commitments for three projects in excess of 130,000 sf each – Marine Gateway, Solo District or Merchant Square. The timely lease-up of these key suburban office developments under construction may provide an indication as to how the next generation of suburban mixed-use developments incorporating office will fare.


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11

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year-end 2010, remained the highest at 17.3%, down from 21.8% at mid-year 2012. New construction in both Downtown and suburban markets continued unabated with more than 1.8 msf under construction downtown and 1.6 msf in the suburbs. Six Downtown office developments are underway - MNP Tower, Telus Garden, 745 Thurlow, 725 Granville Street, 980 Howe Street and 800 Griffiths Way - and all are set to be completed by 2015. Four additional developments are currently in the pipeline with at least one - Credit Suisse/SwissReal Group’s 369,000-sf Exchange project - indicating it will start on-site demolition this year. Three developments (Central, Broadway Tech Centre 6 and Marine Gateway) are under construction in the Broadway market, which will add 532,000 sf to inventory by 2015. MetrotowerIIIisunderconstructioninBurnaby,whichwilldeliver411,000sfin2014.Appia Group’s Solo District is set to deliver another 250,000 sf of office space to the market as part of the phased development targeted for completion in 2015. Phase II of the Centre of Newton mixed-use development in Surrey is slated for completion in the second half of 2013, while Southpointe 99 is scheduled for 2014 and PCI Group will complete the new Coast Capital Savings head office in 2015. In New Westminster, Queen’s Park West will add another 20,000 sf of office space before 2013 is out and the Merchant Square mixeduse development is scheduled to be delivered in the first half of 2014. Developers delivered less than 75,000 sf to Metro Vancouver’s office inventory in the first half of 2013. Approximately 200,000 sf is slated for the second half. Almost 2 msf of new inventory is scheduled to come on stream in 2014. Sublease vacancy in the 48.8-msf Metro Vancouver office market rose to 12.1% of overall vacancy, the highest point since year-end 2010. Sublease vacancy in Metro Vancouver had been less than 10% since mid-year 2011. Year over year, vacant sublease space has increased significantly in the Downtown, Burnaby and Surrey submarkets, while declining in Yaletown, Broadway and Richmond. Strong market fundamentals currently support Downtown net rental rates, but any potential increases have been tempered by demand-side questions as vacancy rose and the delivery of new product in the next 12 to 18 months weighed on tenant and landlord considerations. As a result, rates will likely remain stable for the next six to 12 months. Positive leasing activity in most new Downtown office projects and low vacancy provided developers with the leverage to defend current rental rate expectations while also allowing for some potential upside should demand increase. Suburban rental rates are likely to remain flat for the next six to 12 months with select markets likely experiencing some softening due to heightened vacancy and a proliferation of quality options for tenants. Surrey rental rates will face downward pressure as the 2.5-msf submarket will require time to digest the significant amount of space returned to the market in 2013. The impact of new construction is likely to start to manifest in the next 12 months as backfill opportunities are created by tenants who have committed to the new developments. A preliminary assessment has demonstrated reasonably robust demand for the quality space being vacated, particularly in the Downtown core. The cumulative result of this significant tenancy shift is likely to exacerbate vacancy in various submarkets, but its overall impact remains subject to ongoing analysis.

Vacant Sublease Space 800,000

709,870

Square Feet

700,000 600,000 500,000

516,627

476,210

400,000 307,718

300,000 200,000

188,472

299,773 182,108

100,000 0

2008

2009

2010

Metro Vancouver

125,721

2011

388,061

322,884 148,684

2012

Avison Young For more information please contact: Michael Keenan Principal and Managing Director Direct Line: 604.647.5081 [email protected] Andrew Petrozzi Vice-President, Research (BC) Direct Line: 604.646.8392 [email protected] Sherry Quan National Director of Communications & Media Relations Direct Line: 604.647.5098 [email protected] VANCOUVER Suite 2100, 1055 West Georgia Street PO Box 11109 Royal Centre, Vancouver, BC, Canada V6E 3P3 Phone 604.687.7331 Fax 604.687.0031

Avison Young Office Leasing Team Nicolas Bilodeau 604.647.1336 [email protected]

Stephanie Loucas 604.646.8384 [email protected]

Robin Buntain 604.647.5085 [email protected]

Jason Mah 604.647.5096 [email protected]

Fergus Cameron 604.647.5099 [email protected]

Justin Omichinski 604.646.8387 [email protected]

Gordon Cawley 604.647.1333 [email protected]

Brian Pearson 604.647.5078 [email protected]

Matthew Craig 604.647.5076 [email protected]

Leeanna Petrik 604.647.5087 [email protected]

Bill Elliott 604.647.5062 [email protected]

Dan Smith 604.646.8397 [email protected]

Glenn Gardner 604.647.5092 [email protected]

Josh Sookero 604.647.5091 [email protected]

Mark Hannah 604.647.5065 [email protected]

Terry Thies 604.646.8398 [email protected]

Darrell Hurst 604.647.5069 [email protected]

Matt Walker 604.647.5074 [email protected]

Mona Khandan 604.647.5093 [email protected]

Ian Whitchelo 604.647.5095 [email protected]

James Lewis 604.647.5072 [email protected] Avison Young is Canada’s largest independently-owned commercial real estate services company, with offices in Toronto (HQ) (2), Atlanta, Bethesda, Boston, Calgary, Charlotte, Chicago (2), Dallas, Denver, Detroit, Edmonton, Guelph, Halifax, Houston, Irvine, Las Vegas, Lethbridge, Los Angeles (4), Mississauga, Montreal, New Jersey, New York, Ottawa, Pittsburgh, Quebec City, Raleigh-Durham (2), Regina, Reno, Sacramento, San Diego, San Francisco, San Mateo, South Carolina (2), South Florida (4), Toronto North, Tysons Corner, Vancouver, Washington DC, and Winnipeg.

www.avisonyoung.com

195,888

Mid 2013

Downtown 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.

Office Market Report - Avison Young

Office Market Report - Avison Young

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