New Office Supply Brings Uncertainty
A handful of big deals in the second half of 2014—namely the Healthcare of Ontario Pension Plan (HOOPP) sale of 1500 West Georgia (seen below) to Bosa Properties and Kingswood Properties for $120.5M, and Manulife's acquisition of the HSBC building at 3383 Gilmore Way in Burnaby for $80M—helped push overall transaction activity last year to just under $2B, close to the same record investment levels seen in 2012 and 2013, Avison Young’s Bal Atwal tells us. But with 1.7M SF of office construction underway, and more than 1M SF more set for delivery in the first part of this year, there’s uncertainty swirling around the Vancouver office market.
Avison Young is predicting downtown vacancy will exceed 10% by the end of 2015, up significantly from 3.9% in 2012. But Bal notes that most of the office space scheduled to be delivered this year is pre-leased, so “any impact felt will likely trickle down to B- and C-class product.” There's opportunity here, he stresses. Landlords with well-located older buildings who opt to upgrade their spaces will retain tenants or attract new ones at rents “marginally higher than what they're currently achieving,” Bal says. “I still see upside in some of these properties.”