402 Dunsmuir is slated to open up this summer
The city's real estate power players don't seem too worried
As David Routledge sees it, reports of the death of the office have been greatly exaggerated–especially in a place like Vancouver. “Our strategy remains as it’s been,” says the vice-president and head of the Western Canada office at Oxford Properties Group. “We continue to believe that British Columbia and Vancouver have a well-diversified, strong economy.”
This summer, Toronto-headquartered property owner, developer and manager Oxford opens its newest B.C. project, a 147,000-square-foot office space at 402 Dunsmuir Street in downtown Vancouver. A few blocks away, it’s working on The Stack, due for completion in early 2022, whose 36 storeys will make it the city’s tallest office building.
“We think the things that made Vancouver successful in the office sector remain intact and strong,” Calgary-based Routledge says. Metro Vancouver has a competitive cost advantage over other West Coast technology markets such as Seattle and San Francisco, he notes. Also, even now, big tech companies are growing their footprints in the region. “And Vancouver is viewed as a very positive place for people to live and work, and the quality of life is very, very good.”
If COVID-19 hasn’t shaken Routledge’s confidence in B.C., it has left him skeptical about the recent pandemic-induced shift toward working from home. “It’s premature to call it a resounding success,” he says, citing the unknown long-term impacts on mental health and employee engagement. “Where you’ve got organizations trying to build a cohesive culture and a sense of purpose, the office space that we’re housed in provides a backdrop for that and a uniform experience for employees.”
Pre-COVID, downtown Vancouver and the metropolitan region had some of the tightest office vacancy rates in North America, says Jason Kiselbach, Vancouver-based senior vice-president and managing director with real estate services firm CBRE Group. The pandemic pushed transaction volumes down as tenants moving to a remote workforce weighed their future demand for space, Kiselbach explains. “That’s causing caution in terms of making a decision on a long-term office lease and putting up the capital that requires.”
But in a June report, CBRE’s national investment team said it expected demand for downtown Vancouver office properties to move back toward pre-COVID levels. At the time, there were just four headlease spaces larger than 20,000 square feet available in the downtown core. And despite an excess of subleases on the market, the report said, the overall vacancy rate remained tight, at about 4 percent. Using a conservative forecast, CBRE sees downtown vacancies peaking at 7 percent by 2024, just below a balanced market of 8 percent.
Ross Moore, managing broker at the Vancouver office of U.S. commercial real estate company Cresa, has been closely following the sublease situation. He watched vacant sublease space in downtown Vancouver almost triple from March through early June, climbing from 130,000 square feet to about 365,000. That left subleases accounting for 37 percent of all empty space–three times the long-term average. Generally speaking, tech-oriented companies are driving this trend, Moore says, partly because they’re equipped to work remotely, but also because startups are finding it tougher to secure financing.
Feeling more confident about the economy, he thinks sublease vacancies will peak before the end of the year. Meanwhile, companies with some employees now working from home might decide to shrink their offices. “There’s been a sea change,” says Moore, observing that even employers with progressive attitudes about remote work “have been surprised at how quickly and how easily people have adapted.”
He doesn’t see office life vanishing, though. “[People] may need less offices, and they may need less space, but I think the office is here to stay.”
There’s still strong demand for high-quality office space, says Maury Dubuque, senior managing director with the Vancouver real estate brokerage of Colliers International. In early June, Dubuque says, the vacancy rate for triple-A office buildings downtown was zero; for A-rated properties, it was less than 1 percent. “Then on the other side of it, there’s almost 4 million square feet under construction in downtown Vancouver, but 64 percent of that’s already leased.”
Oxford Properties Group
Every year, the average take-up of office space in the downtown core is about 400,000 square feet. Dubuque asked some Colliers researchers to give him a “doomsday scenario” that saw occupancy drop by 500,000 square feet in 2020 and gain nothing next year. The resulting vacancy rate: a healthy 9 percent.
Rather than a surplus of office space, Dubuque believes, there could be a shortage of properties that tenants actually want. With the average age of an A-quality office building in downtown Vancouver now over 30, companies are looking for newer properties close to transit, with unique architecture, high-end amenities and finishes, exceptional air quality, natural light and seismic security, he says. “I think office space remains and will continue to remain relevant, if we give people a reason to come to the office.”
In downtown Vancouver, there’s also the Amazon factor. The e-commerce titan has already committed to 1.8 million square feet, well above 10 percent of the Class A inventory, Moore says. “If any good chunks of office space come on the market, they just seem to snap it up.”
Despite the move to remote work, Oxford’s Routledge thinks offices will keep attracting employees. He points to American architectural firm Gensler’s recent survey of some 2,300 U.S. office workers, just 12 percent of whom favoured working full-time from home.
For companies planning to add office space, B.C.’s success at managing the pandemic makes Vancouver even more appealing, Routledge maintains. “I think as people look at the future and growing their businesses, that’ll weigh on their minds, too, as a safe place to do business.”