In 18 months Vancouver’s downtown office vacancy rate has been cut in half, plunging to 5 per cent, the second lowest in North America, and speeding up a new cycle of speculative tower construction.
It has also attracted Amazon, one of the world’s largest tech companies, which has booked 150,000 square feet of new downtown office space.
The unprecedented demand could lead to record-high lease rates in the core with suggestions that prime rents could top $50 per square foot.
The Oct. 11 start of the 33-storey Vancouver Centre 2 office tower, backed by the Healthcare of Ontario Pension Plan (HOOPP), the Great-West Life Real Estate Fund and London Life Real Estate Fund, kicked off the latest wave of office development and gave Vancouver a major credibility boost, said Norm Taylor, executive vice-president of CBRE Vancouver.
“HOOPP backing an office tower on speculation. That is a big move. A bold move and an endorsement that a major pension fund believes in B.C.,” Taylor said.
Vancouver Centre 2 is expected to be followed by a smaller, nine-storey office tower downtown by Oxford Properties, the real estate development arm of the Ontario Municipal Employees Retirement System (OMERS) pension fund.
Avison Young forecasts that the third new office building will be a 350,788-square-foot tower on West Georgia Street, a joint project by Westbank Corp. and Allied Properties Real Estate Investment Trust. This tower, known as the “lantern” because of its innovative design, is to be built using a fast prefabricated construction system and is expected to complete in mid-2020, a full year ahead of the similar-sized Vancouver Centre 2.
Taylor suspects a separate OMERS proposal, a 499,000- square-foot Oxford tower at 1133 Melville Street, could now move up the queue as the fourth tower to join the wave. Also near the starting point is a 25-storey office building by Morguard at 601 West Hastings St.
“While relief for tenants is on the horizon in terms of these new buildings, in the short term, businesses seeking office space in Vancouver will see an upwards pressure on rents,” said Taylor.
All of the new towers are being built on speculation, and high demand, especially from the tech sector, combined with rising construction costs, will drive lease rates to record levels that could top $50 per square foot, he said. Currently, the highest net rent for premium downtown office is from $28 to $46 per square foot.
Amazon signs on
Amazon.com Inc. will open a second office in downtown Vancouver and add about 1,000 new workers to its current workforce of more than 1,800 people in B.C., the e-commerce giant announced November 3 in Vancouver.
About 90 per cent of Amazon’s more than 1,000 current downtown Vancouver workers are software engineers who earn good salaries.
Amazon is taking space in Oxford Properties’ planned office tower at 402 Dunsmuir Street and has confirmed it has signed a lease for 150,000 square feet in that building, which is expected to be ready to occupy by 2020.
Jesse Dougherty, general manager of Amazon’s Vancouver operations, would not comment when asked if Amazon was considering taking more downtown space, such as in Westbank’s “lantern” tower.
Dougherty, who was born in Vancouver but left Canada for the U.S., added that Amazon is hiring and hinted his hometown could be shortlisted for an even larger Amazon play.
Seattle-based Amazon has made it known that it intends to select a North American city to be its second global headquarters. Vancouver is in the running despite scarce housing inventory and high prices for existing homes, said Vancouver Mayor Gregor Robertson.
This would require a regional buy-in, the mayor said.
“It’s spread over decades. That growth would be a challenge to absorb in a short time. It would be impossible. But, given some years to prepare and working across the region – this is a regional bid. We need all of Metro [Vancouver] involved in this level of growth so there is an opportunity there. Regardless of the outcome, we need to show the world that we mean business and we want to attract jobs,” Robertson said.
