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Competition among Metro Vancouver office brokers is ramping up as the region now faces the lowest office vacancy of any city region in North America, a local commercial brokerage house says.
The overall vacancy for the region fell to 4.8 per cent in the third quarter of this year, according to a new report by Jones Lang LaSalle (JLL).
Vancouver’s downtown office sub-market vacancy fell to three per cent, making it the second-lowest in North America, behind only Toronto, said Adam Davison, JLL’s senior research analyst.
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Moreover, there are some spaces that are vacant, but not available in the downtown core, he told Postmedia in an interview.
“If you dive into the numbers, (downtown vacancy) actually comes down to 1.8 per cent that is actually vacant and available at the end of Q3, 2019,” he said. “It’s incredibly tight.”
The shortage of space is creating tough competition among local brokers to work out deals for prospective tenants for spaces that have yet to actually hit the open market, said Mark Trepp, an executive vice-president with JLL in Vancouver.
“That’s when the brokers really start to … demonstrate their mettle, by having their finger on the pulse and having a sense of what some of these bigger block opportunities may be coming down the pipe,” Trepp said in a call.
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Recent financial and management turmoil at WeWork, the New York-based co-working giant, likely has many brokers in town sniffing out leasing opportunities around spaces that WeWork has under contracts, Trepp said.
WeWork has nearly 700,000 square feet of shared office space either operational or planned in Metro Vancouver.
Trepp noted he has no reason at this point to suggest WeWork is giving back local space. “(But) there are a number of brokers that have been inquiring about space that WeWork had otherwise tied up.”
Meanwhile, about four million square feet of new office space is under construction in downtown Vancouver, but roughly 63 per cent of that space is already pre-leased or pre-sold, meaning the next wave of office openings will likely have little impact on the overall vacancy rate.
The tight vacancy is also impacting rental rates, the report showed.
The downtown market’s average direct asking net rent for class-A space has increased by 26.1 per cent year-over-year and currently sits at $44.79 per square foot per year, JLL said in its report.
“By historical standards … that is very high,” Trepp said. “Did we expect it? Maybe not quite 26 per cent, but we were speculating 15 to 20 per cent just because the market is so tight.”
Even with such a sharp increase, Vancouver remains an affordable rental market for tenants when compared to the likes of New York, San Francisco and even Seattle, Trepp said.
The concern is there is no space available, he said.
Large international firms, often in the tech sector, are keen to come here, Davison added.
“If we have no space, they can’t come here and bring the high-paying jobs that we need,” he said.
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