METRO VANCOUVER OFFICE REPORT Q1 2018 Quarterly Vacancy Rates Vancouver Downtown Q1 2018 VANCOUVER OFFICE Q4 2017: 6.7% MARKET REPORT Q1 2018: 5.0% -25.4%
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METRO VANCOUVER OFFICE REPORT Q1 2018 Quarterly Vacancy Rates Vancouver Downtown Q1 2018 VANCOUVER OFFICE Q4 2017: 6.7% MARKET REPORT Q1 2018: 5.0% -25.4% We are excited to provide you with our first Metro Vancouver Office Report for 2018. Included in this report is a summary of major upcoming office developments, and a review of taxes and operating costs for buildings in downtown Vancouver. Suburban Q4 2017: 11.7% Q1 has certainly been interesting politically. While our neighbours to the south introduced Q1 2018: 10.4% more favourable tax policies for business, our Federal and Provincial Governments have elected to move in the opposite direction. On February 27th, the Federal Government announced plans to move from a balanced budget to a $18.1 billion deficit, eclipsing -11.1% campaign promises to run at a $10 billion deficit. While a revised tax policy has been introduced to pay for it, most critics noted the lack of a timeline to return to a balanced budget, reflecting poorly on the Liberals promise to re-balance by 2019. An analysis of Vancouver Periphery the new tax policy may be found at: Q4 2017: 6.3% Q1 2018: 6.1% www.pwc.com/ca/en/services/tax/budgets/2018/federal-budget-analysis.html Key Takeaways: -3.2% Reduces the small business tax deduction limit to zero for passive income over $150,000 Limits or restricts access to refundable tax on payment of dividends paid Yearly Vacancy Rates Vancouver Downtown On a positive note, the small business tax rate dropped from 10.5% to 10% in 2018, Q1 2017: 6.6% and will further drop to 9% in 2019. Q1 2018: 5.0% As commercial real estate professionals working with businesses of all sizes throughout the province, there are a number of concerning items in the provincial budget. Of -24.2% particular note is the ill-conceived speculator tax, a higher Foreign Buyers Tax, the increase of Property Purchase Tax, and the Payroll Tax. Furthermore, blatant wealth taxes such as the arbitrary tax on luxury cars and the additional tax on houses assessed Suburban at more than three million dollars have fueled the fear that British Columbia is risky for Q1 2017: 11.9% investment and expansion. Q1 2018: 10.4% As to the impact on real estate specifically, the Urban Development Institute’s letter is worth a recap: -12.6% udi.bc.ca/udi-pacific-letter-on-bcbudget2018/udi-letter-march-5-2018-budget-2018 Key Provincial Budget Takeaways: Vancouver Periphery Q1 2017: 9.1% Real Estate Q1-% 2018: 6.1% Property Transfer Tax increased from 3% to 5% on residential properties valued over $3,000,000 -33% % % Number Number Total Vacancy change Spaces Spaces Change Spaces Spaces Total of Absorption Vacancy of Number Rate from Added Added Q1 from Leased Leased Area Spaces for the Rate Q4 Spaces of Spaces Q1 previous Q4 2017 2018 Previous Q4 2017 Q1 2018 Leased Removed Quarter Q1 2018 Removed Quarter Quarter Q4 2017 Downtown 6.70% 5.00% -25.37% 109 140 22.14% 124 185 700,930 20 31 216 338,103 Suburban 11.70% 10.40% -11.11% 77 137 43.80% 79 105 367,093 20 22 127 75,181 Vancouver 6.30% 6.10% -3.17% 14 36 61.11% 34 34 150,661 4 1 35 41,030 Periphery Total 454,314 Statistics provided by Altus Insite 2 NAI Commercial | Office Report | Q1 2018 Expansion of the area and of the tax for foreign buyers to 20% Downtown Snapshot Downtown market vacancy tightened further in Q1, Speculation Tax of 2% of assessed value for vacant decreasing from 6.7% to 5%. This is the 6th consecutive homes. Supposedly implemented to target non-tax paying quarter showing dropping vacancy rates. British Columbians. There has been much backlash as it clearly affects second homes or vacation properties, and Area the accompanying credit for BC taxpayers is negligible. Class Availability Availability Inventory Available Rate Q4 (%) Rate Q1 (%) Size (SF) (SF) Proposed School Tax of 0.2 % on residential properties All office 6.7 5.0 of assessed value between $3,000,000 and $4,000,000 classes and 0.4% for the value in excess of $4,000,000 for 2019. A 5.8 4.9 15,202,704 744,091 This translates to an additional $10,000 tax for a home assessed at $6,000,000. This does not take into account B 7.4 4.1 6,915,762 280,771 ability to pay or taxes paid and is a blatant political wealth C 11.5 7.3 3,371,124 245,603 tax. If you care to weigh in on the speculation or provincial surtax, Transactions saw a spike in activity with 185 spaces totalling please access the following links: 700,930 SF leased and 140 spaces totalling 453,520 SF added. The average size of space added was 3,239 SF and www.change.org/p/british-columbia-government-stop- the average size of space removed was 4,319 SF. There bc-s-speculation-tax was further absorption of 338,103 SF in the quarter. www.change.org/p/b-c-voters-and-members-of- legislative-assembly-say-no-to-new-provincial-surtax- on-property-拒绝省政府新施的物业附加税 Significant Transactions American big data software company Splunk leased General 27,000 SF at 555 Robson St The top provincial tax rate increased by 14.3% from Glance Technologies committed to 12,000 SF at 200 14.7% to 16.8% Granville St Motor Fuel Tax increased to 5.5 cents per litre as of April 1st Pacific Reach leased 9,000 SF at 701 West Georgia St To fund the elimination of personal MSP premiums, Atimi Software will relocate to 800 West Pender St for employers with a payroll between $500,000 and 7,400 SF $1,500,000 will pay a tax between 0% and 1.95%. For payrolls over $1,500,000 the tax is 1.95%. Regus/Spaces leased 65,000 SF at 939 Granville Street A Luxury Passenger Vehicles Surtax of 15% for vehicles Westside School expanded and took 30,000 SF at 110 more than $125,000 and up to 20% for vehicle more Cambie St than $150,000 (applies to both new and used vehicles). The office leasing market continues to be active through the Suburban Snapshot first quarter with different groups competing for space. The suburban vacancy rate dropped from 11.75% last Now, onto the Q1 Metro Vancoucer Office Report. quarter to 10.4% this quarter. However, last quarter 77 spaces were added in comparison to the 157 spaces totalling 663,758 SF added this quarter. While 105 spaces Q1 2018 Absorption totalling 367,093 SF were leased, the most interesting 800,000 was the 22 non-leased spaces removed from the market Added Leased Removed Absorption totaling 371,846 SF. An example of this was 3383 Gilmore 700,000 Way, which alone had 146,567 SF available for sublease 600,000 removed. Despite a record number of listings being added this quarter, absorption was positive due to 738,939 SF 500,000 being taken off the market. 400,000 # of Inventory Size Total Availability Rate 300,000 Class Buildings (SF) (%) 200,000 All office 347 23,131,420 10.5 classes 100,000 A 178 15,219,458 12.0 0 B 124 6,153,201 9.1 Downtown Suburban Periphery C 45 1,758,261 3.2 3 # of Inventory Total Availability Rate Class Buildings Size (SF) (%) 2017 Year End Report Burnaby 120 10,002,586 9.0 As promised in our 2017 year-end report, we are happy Langley 24 1,172,378 9.1 to provide a summary of the 2018 Downtown taxes and New Westminster 20 1,327,488 11.9 operating costs reported by Altus Insite. If you require this North Shore 39 1,844,205 7.4 type of information for other markets, please e-mail us and Richmond 77 4,654,452 10.7 we will provide the report. Surrey 54 3,439,965 16.8 The Class A average was $21.03. The highest recorded Tri-Cities 13 690,346 8.6 additional rent was $24.43 at The Guinness Tower, 1055 West Hastings Street. The lowest Class A additional rent was $16 at both 638 Smithe Street and Rogers Arena - West Significant Transactions Tower, 89 West Georgia St. Douglas College leased 66,000 SF at 11 Eight St The Class B average was $18.63. The highest recorded Arista Networks committed to 60,000 SF at 9100 additional rent was $24.42 at the Marine Building, 355 Glenlyon Pkwy Burrard St. The lowest Class B additional rent was $11.44 at 318 Homer St. Evonik Canada expanded by 36,000 SF at 3731 North Fraser Way The Class C average was $15.24. The highest recorded additional rent was $21.55 was at Sun Tower, 128 West Allteck Line Contractors leased 18,000 SF at 4333 Still Pender St. The lowest Class C additional rent was $8.00 at Creek Dr Millar & Coe, 417 West Hastings St. Cowi completed a lease for 2 floors with Onni at 1308 The full report, including rents for each surveyed building, is Lonsdale Ave attached as an appendix to this report. Finally, we have a special insert highlighting the major new Vancouver Periphery and proposed office developments. Snapshot The Vancouver Periphery market followed a similar trend NAI Commercial Office Team with another drop in the vacancy rate from 6.3% to 6.1%. 36 NAI Commercial appreciates those landlords who have spaces totaling 113,081 SF were added, 34 spaces totalling asked us to review and assist with their leasing program.