Lee & Associates has just released Q4 2023 North America industrial, office, retail, and multifamily market reports.
Metro Vancouver Industrial Market
The Vancouver industrial market continues to adjust to market conditions as the vacancy rate rose to 1.7% in Q4. Although the Bank of Canada kept the policy interest rate at 5%, the cost of borrowing remains high. Coupled with the deceleration of lease rate growth to 0.8% quarter-over-quarter, there has been a stabilization of lease rates to some extent, which in turn makes the income-producing asset a less attractive investment for prospective landlords. Nevertheless, Vancouver remains one of the hottest industrial markets in North America.
Despite headwinds, the market remains optimistic that interest rates will decrease in the future and spur more sale and development activity. If financing and construction costs diminish, and municipal governments permit more industrial use to address the shortage of developable land; there may be a reversal of this slowing trend going into 2024.
Metro Vancouver Office Market
Despite Vancouver having one of the lowest office vacancies in North America, the market is still feeling the effects of pushing 12% vacancy in the downtown core in Q4. This is the first time in two decades that there has been a tenant’s market in Vancouver, which makes it a great time for lessees to evaluate their leases and take advantage of having more options. Although landlords are reluctant to decrease rates, they are highly motivated to provide other concessions in lease negotiations, improve their buildings, and offer amenities where possible.
Even with high vacancies and lower demand for offices in general, class A space continues to dominate the market. With more options there is a flight to quality happening, and for some a need for superior space that encourages workers back to the office. The uncertainty of the return to office (and therefore future demand for square feet), plays a large role in lenders and investors’ decisions regarding office spending.
Office transactions are likely to remain slow as interest rates will remain high through 2024, and there is an expectation for valuations to come down due to this ongoing uncertainty.
Metro Vancouver Retail Market
In the final quarter of 2023, Canada saw inflation come down to 3.1%, and the Bank of Canada hold the policy interest rate at 5%. This came as a much-needed relief for consumers and businesses alike, as the potential for rate cuts in 2024 became more possible. Going into the holidays, consumer confidence was at a six-year low, with very little room in budgets for discretionary spending. Despite slower transactions, retail vacancy in Metro Vancouver remains around 1%, making it a continued struggle to find suitable space for tenants.
Looking towards the next quarter, The Post’s ground floor is set to be completed early in the year, contributing 185,000 SF of retail to the area including a 40,000 SF Loblaws grocery store. This will be the largest influx of retail space to the downtown core in over two decades. This not only activates the block with ground-floor retail, but also adds workers to an area where more street traffic is needed for downtown retailers.
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