A recovery is underway in the Vancouver office market.
Investment volume in the sector is growing after a challenging few years. Leasing activity is also expected to pick up as indicators improve and there is greater fiscal and monetary certainty in the regional economy.
“A concern, watching return-to-office and how that was received, I think made it a bit questionable whether people would … continue to invest in office assets,” said Shawna Rogowski, senior manager of market intelligence with Avison Young (Canada) Inc.
“Looking at these past six months, we had almost 10 times the amount of volume in just the first half of the year compared to the second half of 2022.”
According to an Oct. 10 report from Avison Young, office investment volume totalled almost $685 million in the first half of 2024, compared to just $69 million in the second half of 2022, reaching its highest level in three years. The firm tracks deals in Metro Vancouver above the $5 million mark.
“We’ve obviously had a quiet few years when it comes to office investment,” said Rogowski. “To see almost 10 times the all-time low is very encouraging, especially when we’ve seen the vacancy rate hit a high.”
Vancouver’s office vacancy rate went from a low of 4.4 per cent in the second quarter of 2019 to 10.4 per cent during the same period of 2024, which is considered high for the local market but remains one of the lowest vacancy rates in North America.
“Even though it’s a shock [for some people to see a] double-digit vacancy rate, the fact that we’re seeing that office investment goes to show that we realize office space is still in need, still necessary and not going anywhere,” said Rogowski. “There are also good deals to be had.”
Though the market for office leases is sluggish, experts say lease deals could pick up as Vancouver’s economy stabilizes.
Susan Thompson, associate research director with Colliers in Vancouver, said the ingredients exist for robust leasing activity, but this past summer was characterized by slower demand.
“There wasn’t a lot of movement,” said Thompson. “Vacancy went up a bit across the board, but all the pieces are now starting to line up for a recovery.”
She said her firm’s outlook is that office space in Vancouver is approaching a “turning point.”
“It takes time for interest rate cuts to start showing up in the data,” she said, adding that some market participants are waiting for others to make a move before jumping in.
Notable recent investment transactions include Morguard Corp. (TSX: MRC) buying 20 per cent of Telus Garden, a 24-storey office tower in downtown Vancouver that is home to Telus Corp. (TSX:T) and notable tenants including Amazon.com Inc. (Nasdaq:AMZN).
The vendor and purchase price were not disclosed.
Another recent transaction was the sale of two downtown towers by Oxford Properties Group Inc. and Canada Pension Plan Investment Board to Germany’s Deka-Gruppe for about $300 million, or $721 per square foot.
“The whole market was watching while that listing was up,” said Avison Young’s Rogowski, adding that it set a benchmark for what office deals might look like this year.
Notable lease transactions, meanwhile, include a lease extension by Vancouver Film School in Gastown, a sublease by Sanctuary AI in Mount Pleasant and a new lease by ILSC Education Group in the downtown core.
Deal volume is expected to accelerate further as interest rates trend downward, allowing office purchasers and tenants to finance their operations on favourable terms.
“Each cut lines it up that it’s more likely that deals will happen, and once we start seeing activity, it’s going to start to build,” said Thompson.
“Everyone’s looking at first-movers. As soon as it starts to turn, that activity level is going to pick up.”
