Vacancy rates for the most desirable buildings in Vancouver`s downtown business core are ultra-low giving current and prospective tenants few options for the next few years.
That's the conclusion of a report from real estate management firm Jones Lang LaSalle (JLL) with the release of the first of what it dubs the Blue Chip Building Index (BCBI).
JLL's new leasing index is focused on Vancouver`s central business district found that 20 of the most prestigious buildings enjoy an average vacancy rate of 2.1%, a little less than half the vacancy rate of the entire downtown market, which stands at 4.3%. High-rise office space is scarcer still, as 1.1% of this most Prestigious office space is vacant.
Of the blue chip 20, six are 100% leased and rents are rising. “Rental rates are beginning to elevate to the market highs of 2008,” said Ray Ahrens, Executive Vice President at Jones Lang LaSalle. Asking net rental rates have recently reached an average of $46 per square foot per annum in the high-rise buildings included in the index and $38 per sq. ft. in mid-rise office premises, surpassing the $23.90 average asking rent per sq. ft. in downtown Vancouver.
“It is a tale of two markets,” said Ahrens. “The suburbs, primarily Burnaby and Richmond have been relatively soft. The downtown is particularly tight.”
Ahrens said the Blue Chip Index, which it intends to replicate in other major markets, is part of a strategy to offer research that's a bit different than what is produced by competing firms. “We are trying to take a different approach to research instead of just providing the normal statistics that everybody does,” pointing to a recent report on transit-oriented office properties, (Jones Lang LaSalle Rapid Transit Office Index) as illustrative of its approach.
What makes a blue chip building? The firm ranked towers using criteria such as location, on-site amenities, building and floor plate size, building age, green standards, common facilities, proximity to public transportation systems, hotels, restaurants, and tenant expenses such as property taxes and operating costs.
Size matters for would-be blue chip buildings in Vancouver or other major market. “Smaller floor plates would probably be the main criteria to exclude” buildings from the blue chip list,” said Ahrens.
Vancouver`s blue chip buildings are dominated by financial services, accounting and law firms and natural resources companies.
“Tenants have limited options for growth or relocation, making it essential for them to develop effective cost-containment strategies,” said Ahrens. “This is particularly important for tenants in high-rise office space where the vacancy rate has fallen to a low of 1.1 percent.”
The dearth of Class A space has prompted plans that could add approximately 2 million sq. ft. of new office space between 2014 and 2016. Oxford Properties has begun construction on a 270,000-sq.-ft. tower at 1021 West Hastings without any preleasing requirements – “a sign of its confidence in Vancouver's office market and local economy,” Jones Lang LaSalle said. As well developer Bentall Kennedy has successfully preleased 50 percent of its new development at 745 Thurlow to McCarthy Tetrault LLP and SNC Lavalin, with construction slated to start in March 2012.
Unless the economy crashes, space is expected to remain tight “for at least another three years,” the firm concluded.