Lee & Associates has released Q2 2023 North America industrial, office, retail, and multifamily market reports.
Metro Vancouver Industrial Market
The Metro Vancouver industrial market in Q2 2023 continued to demonstrate its resilience with vacancy rates remaining around 1%. A notable lease deal took place at 7233 Progress Way in Delta, BC, totaling an impressive 380,578 square feet. This significant transaction showcases the continued demand for industrial space in the region. Lease rates also experienced a healthy quarter-over-quarter growth of 2.3%, reflecting the ongoing market momentum.
Most of the vacant spaces on the market tend to lack modern specifications, as tenants demand higher ceiling heights and flexible loading capabilities. This shifting demand has led to careful decision-making among occupiers, who are actively seeking real estate solutions that align with their business needs.
With the Bank of Canada’s decision to increase the policy interest rate to 4.75%, the downward trend in sales activity continued as the cost of borrowing rises. With inflation levels on the decline, the reassurance of stable business costs could foster greater buyer confidence in property acquisitions and counteract the existing trend in sales activity. For the remainder of the year, barring any unforeseen major impacts to the economy, the Vancouver industrial market is expected to remain tight and maintain its relatively strong growth.
Metro Vancouver Office Market
The second quarter of 2023 saw the Bank of Canada raise interest rates by a further 25 basis points. This could be signaling that the BoC is inducing a hard landing for the economy with further rate increases. The sector feeling the effects of this the most has been the office market, as the vacancy rate in Metro Vancouver climbed even higher throughout the quarter, hitting over 10% in the downtown core. While the amount of sublease space on the market came down, this indicates that mostly headlease space is now contributing to the increase in vacancies. Tenants choosing not to renew could mean that some companies are experiencing a delay between when the market felt the effects of a soft recession and they initiated a cost-cutting approach.
We expect to see vacancies increase further over 2023, specifically in downtown Vancouver, as headlease and sublease space continues to hit the market. However, the fundaments of the market remain strong to entice tech and other industries to set up shop here once the pain of a recession has passed. There is confidence that the Vancouver office market will bounce back in the coming years.
Metro Vancouver Retail Market
Despite starting off the year signaling that there would not be any further interest rate increases, the Bank of Canada raised the policy rate during the second quarter of 2023 by 25 basis points, bringing the current prime rate to 6.95%. However, the retail industry in Metro Vancouver has still not felt the full effect of this soft recession, as consumer spending remains strong. This goes beyond the demand for budget-friendly or essential items, as experiential retail demand – travel, entertainment, restaurants, and bars – is up. According to Statistics Canada restaurant/bar spending reached new highs in April in BC, with the numbers not due solely to inflation. An increase in the number of cruise ships in Vancouver harbour this year is also helping downtown retailers by boosting the foot traffic, as between this quarter and October we will see a record of 331 ships.
Vacancy remains tight at 1%, which means existing retailers in Vancouver and new entrants still struggle to find new locations.
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