Vancouver's office-leasing market is becoming more competitive with other major cities, says a CB Richard Ellis 2004 yearend report.

Vancouver, including its suburbs, finished 2004 with an office vacancy rate of 13.7 per cent, ranking sixth among Canada's 10 major urban centres. At the end of 2003, Vancouver ranked last at 17.2 per cent.

"I think it shows that B.C. and Vancouver are emerging economies," says Chris Clibbon, a senior research analyst with the Vancouver office of CB Richard Ellis.

The vacancy rate in downtown Vancouver dropped to 11.2 per cent - its lowest point since 2002 - after finishing 2003 at 12.3 per cent.

Bayne Stanley, Business Edge
Chris Clibbon of CB Richard Ellis says the new statistics show that British Columbia is evolving into an economic powerhouse.

Clibbon attributes the decline to companies' tendency to upgrade and expand in the wake of former low rental prices.

In the fourth quarter, the downtown vacancy mark dipped to 13.7 per cent from 15.2 per cent.

The downtown vacancy rates within higher-priced triple-A and A-class buildings dropped to lows of 6.9 per cent and 7.7 per cent respectively. (The new triple-A-class Shaw Tower at 1067 West Cordova - home to Shaw Communications Inc., the Pattison Group and several other major firms - accounted for a 0.9-per-cent decline all by itself.)

Meanwhile, the downtown B-class vacancy rate descended to 14.3 per cent and the C-class rate slipped to 14.6 per cent.

Clibbon says the stats show that British Columbia is transforming from a have-not province to an economic powerhouse.

The still-strong housing market, increased business with Asia, construction megaprojects and the 2010 Winter Olympics are all contributing factors.

"I don't see any reason why it would slow down before the Olympics," says Clibbon.

The only mitigating factor might be the high Canadian dollar, which would have a bearing on international trade, he says.

Six consecutive quarters of decreasing vacancy rates have resulted in a significant depletion of available space and an increase in rental rates among the top quality buildings, especially in prime downtown view space.

The fourth quarter marked the second consecutive quarter in which Vancouver was one of the top two Canadian markets recording the largest decrease in vacancy.

According to CB Richard Ellis statistics, Vancouver, Calgary, Edmonton and Waterloo, Ont., recorded the largest decreases in vacancy, while Ottawa was the lone market where vacancy rates increased. Edmonton reported an overall rate of 8.3 per cent, down from 11.3 per cent at the same time in 2004. Edmonton's downtown rate fell to 7.9 per cent from 11.8 per cent a year earlier.

"The western markets are starting to show some improvement," says Clibbon. "It shows we have an economy that's somewhat independent of the eastern market."

Calgary's overall vacancy mark dropped to 9.5 per cent from 13.3 per cent while its downtown rate decreased to 8.4 per cent from 12.4 per cent. In Edmonton, overall office rate declined to 8.3 per cent from 11.3 per cent, while downtown went to 7.9 per cent from 11.1 per cent.

Edmonton placed third nationally behind Waterloo and Winnipeg while Calgary was fifth. Toronto, considered to be Canada's head-office mecca, had the highest overall vacancy rate at 14.4 per cent compared to 16.2 per cent at the end of 2003, while its downtown rate improved marginally to 13.5 per cent from 14.2 per cent.

Avison Young Commercial Real Estate reports even lower Vancouver year-end vacancy rates. Wendy Waters, research director with the Vancouver office of Avison Young, says the downtown vacancy rate was 10.3 per cent while the overall mark was 12.1 per cent.

Both Avison Young and CB Richard Ellis are sticking with their previous prediction of an eight per cent vacancy rate for 2005.

"Certainly, for downtown, it will be trending to a balance," says Waters. "At eight per cent, that means most of the triple-A and A (class) space will be used."

Triple-A and A class offices are the highest quality and most expensive. Waters says the lack of big blocks of space will force many large tenants to take a hard look at leasing in the suburbs - even if they don't want to.

A recent Avison Young report describes the software-publishing industry as B.C.'s fastest-growing sector. The company predicts software firms will occupy two million sq. ft. of office space in 2005.

The report describes software as the province's fastest-growing industry and predicts such companies will employ 8,600 people in Greater Vancouver by the end of 2005 and 16,600 by the end of 2015 and lease four million sq. ft.

"We're seeing a bit of a shift of the creative companies," says Young, adding most software and games companies prefer downtown and Yaletown.

Avison Young predicts a leasing boom of sorts in Yaletown as four buildings along Cambie, Homer and Beatty streets complete renovations, offering 165,000 sq. ft. of new space.

"The Yaletown market has evolved to become more than a home for startup firms," says the Avison Young report. "The district now attracts primarily mature creative and knowledge-economy companies."

Avison Young predicts, some software firms seeking to grow their offices will split leases between the urban core and the suburbs, while smaller companies occupying 8,000 sq. ft. or less will stay in the urban core.

By 2007, older warehouses around Second Avenue and Clark Drive may become the new "Silicon Alley" for business incubators as the high cost of B- and C-class space will drive them off the downtown peninsula.

(Monte Stewart can be reached at monte@businessedge.ca)