Lee & Associates has released Q4 2022 North America industrial, office, retail, and multifamily market reports.
Metro Vancouver Industrial Market
Despite a slight increase in vacancy rates by 5 basis-points since last quarter, the Metro Vancouver industrial real estate market continues to show strength as vacancy hovers around 1%. The market is one of North America’s tightest, with lease rates growing 3% quarter-over-quarter. It is worth noting a new 155,000 SF lease deal was struck at 3200 East Broadway, one of the largest industrial lease transactions of Q1 2023. Vancouver is not known for its accommodation of large floorspace, as deals of this size typically happen in the Fraser Valley.
On March 8, 2023, the Bank of Canada decided to pause interest rate hikes and keep the policy interest rate at 4.5% after eight consecutive increases. Although the pause in interest rate hikes has temporarily stopped the rise of purchasing costs, many purchasers have already turned to leasing as a result. Overall, given the tightness of the market, continued scarcity of developable land, and expected steadiness from Canada’s monetary policy, Vancouver’s industrial real estate market is promising for the remainder of 2023.
Metro Vancouver Office Market
The first quarter of 2023 was marked by further layoffs in the tech industry and the most sublease space seen in downtown Vancouver in 30 years; there is a link between the two, as most of the sublease space is coming from technology companies who are trimming their workforce and have the ability to work from home. This means the massive floor plates that were once snatched up by these companies are now coming back onto the market. While no official statements have been made by companies in Vancouver such as Microsoft and Amazon that they will follow suit and sublease their expansive floorspace in the downtown core, the worry is there.
The next few quarters will provide a better picture of the state of the office market post-COVID. Although more sublease space is expected this year as new projects reach completion, long-term projections for Vancouver are still positive as we have one of the lowest office vacancies in North America, at 5% for Metro Vancouver, and pushing 10% in the downtown core.
Metro Vancouver Retail Market
The first quarter of 2023 has begun with two large retailers announcing their exit from Canada—Bed, Bath & Beyond and Nordstrom have both decided to close all Canadian operations. This is particularly surprising with Nordstrom, as the Vancouver location was the most profitable in Canada by far, even beating out major US locations to be the company’s top-performing store overall. Despite these large floor spaces being vacated, the retail industry has so far shown resilience as there has been a lot of interest in new tenants to fill the space; large floor areas are hard to come by in Vancouver, especially when vacancy remains low at 5.2%.
There is some good news for retailers this quarter as the City of Vancouver made temporary patios permanent. These provide major help for restaurants and cafés to attract more business as the weather improves.
Inflation had the largest deceleration since April 2020, and interest rates have paused, which is hopeful for players in the retail market as there is a potential for more sales, development, and consumer spending in the coming quarters.
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