Downtown office market rebounds

Downtown Vancouver's office leasing market has bounced back due to a stream of infrastructure projects while Metro Vancouver suburban markets continue to struggle with the contraction of their American branch-plant tenants, says one commercial realtor.

Downtown's office vacancy rate, which swelled during the recession, shrank to 4.8 per cent in the first quarter of 2010, Cushman & Wakefield Ltd. reported in its Mid-Year Office & Industrial Outlook report.

"It would seem that the downtown market has certainly all but repaired itself," Jeffrey Rank, Cushman & Wakefield's managing director in Vancouver, said in an interview.

A year and a half ago, companies were making a lot of office space available for sublease to save money. Now, Rank said, "most of the sublease space that was out there has been accounted for and vacancy rates are now under five per cent."

Nationally, Cushman & Wakefield found that Canada's 12 major markets "stood up better than expected during the global recession," although there have been rough spots.

Calgary, for instance, will have seen 7.5 million square feet of new office space built by 2012, but its natural-gas industry firms are struggling in a low-price environment, which has "put heavy brakes on office demand."

Toronto, on the other hand, saw some 4.5 million square feet of new office space come on stream as the recession hit, but its vacancy statistics have "exceeded expectations" in the first quarter of 2010, says the report.

In Vancouver, at the recession's height, Rank estimated up to one million of downtown's 29 million square feet of office space was available for sublease. Today, less than 300,000 square feet remains on the market, with few large single spaces left.

Rank said the intervening period gave a lot of firms already located downtown room to consolidate operations or expand. Many of them were involved in infrastructure projects, such as the Port Mann Bridge replacement and construction of roads.

"We're seeing [leasing from] the software and gaming side to some degree," Rank added, "but the main driver in terms of major expansion has been engineering and consulting and architectural firms," that serve the infrastructure sector.

Rents for downtown's premium view spaces have climbed back to peak-of-the-market levels of about $38-$40 per square foot, Cushman & Wakefield said in its report.

Non-view rents downtown are averaging $25 per square foot in the first quarter of 2010, not quite peak levels but rising, which Cushman & Wakefield believes will put pressure on tenants to look for less expensive accommodations in the suburbs.

However, suburban markets have seen vacancies rise to 12.4 per cent in the first quarter of 2010 from 11.7 per cent in the same quarter a year ago as new office buildings added to inventory while the recession choked demand.

"prepared by Derrick Penner/Vancouver Sun"