Mid-Year 2019 Office Market Report Metro Vancouver, BC metro Vancouver Vacancy hits record lows as tenants face limited vacancy & absorption trends availability and rising rates in constrained market Vacancy Rate 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% etro Vancouver’s growing success at Vancouver-Broadway all reporting vacancy at Mattracting large global technology firms less than 5% and forecasted to tighten further 2019F 3.2% 377,4267.3% and co-working operators has underscored by year-end 2019. As regional vacancy has de- local supply issues that have resulted from the clined steadily since mid-year 2016, demand re- protracted development times that have be- mained robust and intensified thereby exerting 532,027 Mid-2019 4.3% come increasingly commonplace throughout growing pressure on the ability of the region to the region in recent years. The result has been deliver new supply. The response has triggered record-low vacancies, rapidly rising rental rates the largest development cycle in the history 2018 5.1% 1,802,623 and constraints on the growth of local, national of Metro Vancouver, which will start delivering and international tenants, which could threaten new buildings primarily in the Downtown and Vancouver-Broadway markets starting in 2020 2017 8% 1,223,656 the success the region has had as an emerging through 2023. However, the lag until these global destination for companies seeking to es- buildings are completed has led to severely tablish new operations or expand existing ones. constrained market conditions that will persist 2016 856,868 9.7% Record-low office vacancy in Downtown Van- until 2021and likely into the first half of 2022. couver may be capturing national headlines, Positive first-half net absorption of 532,027 sf but it is a challenge facing all of Metro Vancou- 2015 10% 1,334,604 marked the fifth year in a row that the region ver as strong demand and limited new supply recorded positive absorption in the first six -400, 0 40 80 1, 1, 2,000,000 across the region led vacancy to slide to a new 0, 0, 20 60 months of the year. While less than the 764,911 000 000 0, 0, 00 000 000 0 record low of 4.3% at mid-year 2019. The pre- sf absorbed regionally in the first half of 2018, vious record low of 4.7% had been set at year- Absorption Rate (sf) the amount of first-half 2019 absorption was end 2007. Only one office market of the eight still notable considering that there was very lit- Vacancy Absorption that Avison Young covers in Metro Vancouver tle new construction added to the regional of- 12-month projection based on 10-year average absorption is considered balanced – Richmond – with the fice inventory in 2019. Much of the absorption and known net absorption in new inventory key urban markets of Downtown, Yaletown and was the result of tenants occupying existing continued on back page METRO VANCOUVER OFFICE VACANCY SUMMARY (MID-YEAR 2019) INVENTORY HEAD LEASE SUBLEASE TOTAL VACANCY 6-MONTH DISTRICT (SF) VACANCY (SF) VACANCY (SF) VACANCY (SF) RATE (%) ABSORPTION (SF) Downtown 22,868,145 382,557 82,770 465,327 2% 202,168 Yaletown 2,074,372 7,601 1,668 9,269 0.4% 27,758 Vancouver-Broadway 7,330,164 316,967 25,096 342,063 4.7% 134,046 Burnaby 9,318,790 422,886 111,195 534,081 5.7% 179,136 Richmond 4,215,800 308,645 51,473 360,118 8.5% -46,648 Surrey 2,906,607 206,243 0 206,243 7.1% -8,865 New Westminster 1,688,572 212,600 0 212,600 12.6% 7,598 North Shore 1,450,898 106,921 5,110 112,031 7.7% 36,834 TOTAL 51,853,348 1,964,420 277,312 2,241,732 4.3% 532,027 Vacancy rate june 30, 2019 4.3% Absorption (demand) Vacancy (supply) Rental Rates vacancy rate December 31, 2018 5.1% Partnership. Performance. avisonyoung.com Downtown Downtown vacancy hits new record low Vacancy trends Spaces lease at 939 Granville Street. The such as the former Deloitte space in Downtown market is approaching (if not Bentall Centre available in the second Downtown office vacancy hit a new already at) structural vacancy (+/- 2%), half of 2019, appear unconcerned. The record low of 2% at mid-year 2019, particularly in class AAA and A buildings. Downtown market is heavily tilted in surpassing the previous record low of Despite intensifying supply constraints, favour of landlords and will remain 2.5% set in 2008. Vacancy decreased reasonable deal velocity was achieved in so until new (and available) inventory during the first six months of 2019 to 2% MORE THAN the first half of 2019. While co-working begins to arrive in 2021. Expect supply from 2.9%, and dropped an astonishing operators continue to make sizable constraints to precipitate further 300 basis points in the past 12 months 5 MSF forward commitments in the Downtown preleasing activity and lease extensions to 2% from 5%. Vacancy decreased in all office market, they are having to compete well in advance of contractual lease building classes, particularly class AAA, OF NEW with other tenants as intensifying supply expiries. which dropped dramatically to 0.7% DeVELOPMENT constraints stoke preleasing activity. Many from 2.6% in the past six months and sizeable companies are being forced absorption trends even more precipitously from 6.9% a year to consider their 2022 and 2023 lease For the fifth year in a row, positive earlier. Class A vacancy at mid-year 2019 expiries now. Larger tenants will need first-half absorption was recorded remained virtually unchanged since year- to demonstrate a willingness to address in the Downtown market. However, end 2018, but was down substantially space needs well in advance of lease first-half absorption of 202,168 sf at from the 4.6% recorded 12 months expiries as developers work to secure mid-year 2019 was substantially less ago. Class C vacancy decreased to 4.5% prelease commitments. There has been than the 471,532 sf of absorption from 6.3%, which was almost entirely virtually no “in-fill” leasing activity – one recorded in the first six months of attributable to commencement of the floor or less – in new developments, 2018. Almost half (48%) of Downtown which suggests developers remain first-half 2019 absorption occurred recent lease deals - mid-year 2019 (>10,000 sf) focused on multi-floor tenant prospects. in class AAA buildings with another Additional leasing activity may be 28% registered in class C buildings. tenant BUILDING SF stimulated when developers begin to Substantial downtown occupancies in WeWork B6 170,000 entertain interest from smaller tenants. the first half of 2019 included Spaces Undisclosed tenant Creative Space 75,780 Sublease space is not a significant part of at 939 Granville Street, Amazon Undisclosed tenant 155 Water Street 75,000 the Downtown market (approximately at The Exchange, Methanex Zayo Canada (renewal) 175 West Cordova Street 67,500 18% of overall vacancy) and almost occupying sublease space at the entirely comprises smaller-format spaces. Marine Building, Teck Resources’ PHSA (renewal) 1190 Hornby Street 63,500 Landlords appear to be inclined to take expansion at B5 and Bennett WeWork 1045 Howe Street 56,000 control of sublease availabilities through Jones LLP occupying space at Park BMO Financial Group (renewal) HSBC Building 48,300 rights of termination to take advantage Place. There were no noteworthy BentallGreenOak B6 47,000 of prevailing market fundamentals and downsizings or departures. secure more favourable lease terms on Clark Wilson LLP (renewal) HSBC Building 46,600 space availability factor Harper Grey LLP (renewal & expansion) Scotia Tower 46,300 a longer-term basis. At June 30, there Toronto-Dominion Bank (renewal) 700 West Georgia Street 43,000 were no vacant and available large blocks The space availability factor, or SAF, of contiguous space (with the possible refers to head lease space or sublease Unbounce Marketing Solutions (renewal) 401 West Georgia Street 39,200 exception of space in co-working facilities) space that is being marketed but is not B2Gold Corp. Vancouver Centre II 37,000 in the Downtown market. Landlords physically vacant, and new supply that Slack Technologies Bentall 5 34,140 with near-term large-block vacancies, is near completion and available for IQ Office Suites (renewal & expansion) Royal Centre 28,800 Vacancy with Space Availability Factor (SAF) and Absorption Canada Drives 1500 West Georgia Street 22,740 Zenabis Global (sublease) Park Place 16,370 14.0% 1,101,041 1,200,000 Northeastern University Deloitte Summit Building 15,000 12.0% 879,147 1,000,000 Hub International Bentall 1 15,000 2.8% 3.8% 800,000 1Qbit (sublease) 1285 West Pender Street 14,930 10.0% 9.3% 2.2% 600,000 PHSA (renewal & expansion) 1033 Davie Street 14,870 F e A 8.0% t S a / R IQ Office Suites 550 Robson Street 13,000 350,156 400,000 e 387,909 n t 7.1% o i a 6.0% 7.2% t R Canwel Building Materials 1100 Melville Street 12,490 p y 202,168 200,000 r c 200,811 o n Jones Lang Lasalle Telus Garden 12,410 2.1% s a 4.0% b c A a 2.0% 0 Trulioo 1177 West Hastings Street 11,600 V 2.8% 2.0% 2.9% Sandstorm Gold (renewal) 400 Burrard Street 11,500 2.0% -200,000 0.4% Domus Legis Holdings 1125 Howe Street 10,700 0.0% -400,000 Woodfibre LNG 1185 West Georgia Street 10,540 2015 2016 2017 2018 Mid-2019 2019F IMA Solutions (renewal) 1199 West Hastings Street 10,370 Vacancy Absorption SAF* Space Availability Factor EC Market 1140 West Pender Street 10,650 12-month projection based on 5-year average absorption and known net absorption in new inventory, Login Radius 815 West Hastings Street 10,930 and 10-year average SAF.