The office market in Metro Vancouver is seeing more sales as investor confidence grows and interest rates continue their downward trend, according to Avison Young (Canada) Inc.
The commercial real estate advisory firm said that while 2023 was a slow year for office sales with only 14 transactions over $5 million, the first half of 2024 saw 16 sales totalling nearly $700 million.
“Although some of these were partial interest transfers, the activity indicated renewed confidence in the office market and provided private buyers an opportunity to acquire premium assets from institutional investors looking to reduce or exit their office holdings,” said the firm’s Metro Vancouver office market report for the third quarter of 2024.
The Nov. 5 report said office investment is expected to increase as capital becomes more accessible. The Bank of Canada cut its key interest rate by 50 basis points to 3.75 per cent on Oct. 23, its fourth consecutive reduction from a recent high of five per cent. The central bank’s next announcement will be on Dec. 11.
Avison Young’s report also said Vancouver’s office vacancy rate has ticked up to 11 per cent in Q3 2024 compared to 10.4 per cent in the previous quarter.
In particular, the downtown vacancy rate rose by 80 basis points quarter-over-quarter to 13.6 per cent. Avison Young said this shift was largely anticipated due to two major tenants releasing space: Microsoft Corp. (Nasdaq: MSFT), which placed 61,884 square feet on the sub-lease market at 1090 West Pender St. (BentallGreenOak’s B6 tower), and WeWork Inc., which vacated 68,785 square feet at 595 Burrard St. (Bentall’s B3 tower).
“There continues to be increased demand for class AAA and A buildings as the trend toward high-quality office space continues,” the report said.
Avison Young, which also tracks metrics like available space, absorption and average rental rates, noted that two office buildings are currently being turned into hotels: 576 Seymour St., a heritage property that will retain its façade; and 225 Smithe St., a newer, mixed-use building.
“Tenants vacated 576 Seymour several quarters ago, while 225 Smithe, completed three years ago, has remained vacant since its delivery,” the report said.
The firm noted that there are 29 projects totalling three million square feet under construction, with only three major projects (each over 200,000 square feet of office space) currently under construction.
