Fiona Anderson
Sun
A report released by CB Richard Ellis says the office vacancy rate for downtown Vancouver fell to 7.8 per cent in the fourth quarter of 2005.
Businesses are having more and more trouble finding good office space in downtown Vancouver and it’s not going to get any easier as the number of wannabe tenants grows and the number of buildings doesn’t.
The office vacancy rate for downtown Vancouver fell to 7.8 per cent in the fourth quarter of 2005, the lowest it’s been in almost four years, a report released Tuesday by CB Richard Ellis said.
The vacancy rate is even lower — 6.3 per cent — for top quality, or AAA, buildings.
A 10-per-cent vacancy rate is the equilibrium level for the market, CB Richard Ellis’ senior research analyst Chris Clibbon said in an interview.
When the vacancy rate gets any lower the landlord controls the market, which usually means higher rents. Rents in AAA buildings have gone up 25 per cent in the last 12 to 18 months, Clibbon said, with some office towers charging $35 to $40 per square foot.
And with no new office buildings on the horizon, there is no end in sight.
“Historically in this market there has always been new supply which has countered the vacancy trend,” Clibbon said.
“Vacancies drop, someone goes ahead and builds a tower [and] vacancy goes up. It’s a cycle that repeats itself. This is the first time we’ve seen it where we don’t know where the inventory is going to come from downtown.”
It takes about three to four years from start to finish to build an office tower, Clibbon said.
“[So] we need to get something started right now.”
But there is nowhere to build.
“There are almost no opportunities for an office developer to build downtown,” Clibbon said. “The whole condominium craze has absorbed a lot of prime sites.”
As a result some potential tenants have had to look elsewhere. The Vancouver Olympic Committee was looking to expand its 20,000 sq. ft. in the downtown core to 220,000 sq. ft. of space by 2009. But to do that, it had to move away from downtown to near the Burnaby border, Clibbon said.
Richmond-based Transoft Solutions Inc. was hoping to find office space in downtown Vancouver to be closer to home for its largely young workforce that tended to live in areas like Kitsilano, the company’s CEO Milton Carrasco said. The company needed 15,000 sq. ft. to amalgamate its offices and allow for the rapid growth it was anticipating in the future. But that turned out to be impossible. The only space available was on separate floors or otherwise divided up and that wasn’t acceptable, Carrasco said. In the end, the company rented new space in Richmond.
That’s not surprising, Clibbon said.
“Large blocks of contiguous space are extremely rare, especially in the AAA buildings,” he said.
Cushman & Wakefield LePage Inc. also released its numbers Tuesday on fourth quarter vacancy rates. Cushman’s numbers show an even tighter market, with the vacancy rate in downtown Vancouver being 6.9 per cent. Unlike CBRE, Cushman includes government buildings, which are traditionally 100-per-cent occupied, leading to lower numbers.
Bart Corbett, Cushman’s vice-president, office leasing division, agreed with Clibbon.
“What is most concerning as a representative of tenants in the downtown core is not only the short-term lack of supply but the long-term prospects for the delivery of new inventory,” Corbett said in a statement.
“Beyond Bentall V (90 per cent preleased and also to complete in 2007), there is no commitment or new sites proposed by developers that could deliver a major new office complex in the downtown core prior to 2010.”
Both studies show the tightest market in the Greater Vancouver area to be the “Broadway corridor,” the area on Broadway between Granville and Cambie.