Metro Vancouver Industrial Market
Vancouver’s industrial market continues to stabilize with the regional vacancy rate increasing by 50 basis points to 2.2% while asking lease rates continue to plateau at $20.00 per square foot. While the national vacancy rate stands at 2.7%, Vancouver still remains one of the tightest Canadian markets.
This quarter, the Bank of Canada cut interest rates by 25 bps from 5.00% to 4.75% with anticipated decreases throughout the year. Despite the economic conditions facing the Vancouver industrial market, several significant sales still occurred. Bosa Properties acquired Fama Business Park, a 316,000 square foot multi-building industrial site in Surrey for $93 million signaling ongoing resiliency in the Vancouver market, particularly in the south of Fraser market where much of the region’s industrial activity is taking place.
Development activity remains strong with 6.6 million square feet of large bay warehouse and distribution projects coupled with small-to-mid bay speculative strata developments signaling continued confidence for future demand within the Vancouver industrial market. While several developments are nearing completion, the majority of large block distribution space has already been spoken for, namely national tenants such as Canadian Tire, Aritzia, and Pet Valu.
Metro Vancouver Office Market
The Vancouver office market continues to navigate a tenant-favorable environment in Q2 2024, characterized by rising vacancy rates and cautious development activity. Following the Bank of Canada’s policy interest rate cut of 25 basis points to 4.75% on June 5, the first reduction in four years, the market has seen a potential for increased investment activity. This rate cut, aimed at stimulating economic growth, could have significant implications for the office market, potentially lowering borrowing costs and encouraging both tenants and investors.
Vacancy rates in downtown Vancouver have remained elevated, hovering around 12%, indicating ample availability of office space. This trend underscores the ongoing challenge for landlords as the market continues to favor tenants. Despite this, Vancouver’s tech industry remains resilient, benefiting from lower labor costs which attract companies to the region. In a notable transaction, Germany-based Deka Immobilien Investment’s purchase of 401 West Georgia Street and 402 Dunsmuir Street closed for an estimated $300 million. This 415,000 square feet office space transaction is poised to be the largest of the year, highlighting a strong appetite for foreign investment in Vancouver despite broader market uncertainties.
Office developments in Vancouver are increasingly less speculative, reflecting a cautious outlook. Developers are prioritizing pre-leased projects over speculative builds to mitigate risk in the face of uncertain market conditions. An example of current office utilization trends is ICBC’s takeover of “The Hive” building at 2150 Keith Drive. The 164,255 square foot building will accommodate semi-remote work policies, continuing from their previous office where only 40% of the space was occupied on any given day.
Overall, the Vancouver office market in Q2 2024, as in many of the recent quarters, is marked by a tenant’s advantage, selective investment activity, and cautious development approaches, influenced by broader economic conditions and evolving work patterns.
Metro Vancouver Retail Market
The Vancouver retail market continues to see strong tenant demand but still faces limited availabilities resulting in 3.2% rent growth. Despite strong market dynamics, a year removed since Nordstrom announced the closing all Canadian locations, the retailer’s former space of 220,000 square feet at CF Pacific Centre is still vacant. However, despite the large remaining vacant block, downtown Vancouver’s retail corridor along Robson Street remains active with plenty of moving parts. Adidas will locate their 35,000 square foot flagship location at the former Victoria’s Secret site while across the street, Roots Canada announced they will re-locate a few blocks eastward and re-launch a new concept retail location.
On the investment front, this quarter the Bank of Canada implemented its first interest rate cut by 25 basis points from 5.0% to 4.75% with many scheduled reductions in the coming future. This reduction aimed at stimulating economic growth could have significant implications for the retail market.
The region’s transit-oriented development growth strategy is realizing its potential since many Burnaby neighborhoods are currently experiencing significant development activity in and around the skytrain stations. With the successful completion of the Amazing Brentwood, Shape Properties’ other development at the City of Lougheed is picking up some traction. A key tenant announcement this quarter is T&T Supermarket, a national Asian grocery chain, announced its second Burnaby location at Onni’s Gilmore Place occupying 55,000 square feet within the transit-oriented mixed-use development.
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