A new lease by Grant Thornton LLP at Vancouver’s downtown Vancouver Centre II tower is another positive sign for class-AAA office buildings in the city’s downtown core.
GWL Realty Advisors, which manages the tower known as VCII, recently announced the Canadian accounting firm has leased a 30,000-square-foot block on the 19th and 20th floors.
It is the latest indication the downtown office market is seeing a growing appetite for companies to occupy its newest and most amenitized offices.
With Grant Thornton, and other recent additions of Pan American Silver (30,175 square feet) and Transca Real Estate Development (4,286 square feet), Vancouver Centre II is now 82 per cent leased, said Robert Kavanagh, senior vice-president, GWL Realty Advisors.
“GWL Realty Advisors is thrilled that Grant Thornton has chosen Vancouver Centre II,” Kavanagh said. “With its exceptional tenant amenities, advanced technology infrastructure and direct connection to two transit lines, it’s no surprise that VCII has attracted tenants from a wide cross-section of industries, including business consulting, real estate, mining and tech.”
Grant Thornton is a Canadian accounting and business advisory firm that provides audit, tax and advisory services.
“The new office will offer a collaborative workspace for staff and a welcoming atmosphere for clients,” said Mark Iwanaka, managing partner for South Coastal B.C. with Grant Thornton, in a release.
“We’re creating a modern and functional space that will meet the needs of our growing team now and into the future,” said Adam Creen, senior manager, national real estate, Grant Thornton, in the same release.
The new tenants join Kabam Games, PI Financial, Owen Bird Law Corporation, Sandstorm Gold, and TSX Venture Exchange at VCII.
Demand coming from many sectors
“I think our market, in some respects, is a lot healthier than it was heading into the pandemic,” said Mark Trepp, executive vice-president with JLL. “One of the main reasons . . . is because of the diversity of demand.”
He said tax companies, law firms and other professional services companies are reinforcing a market that had become too reliant on the tech business. Activity from natural resource companies is also growing.
Vancouver’s downtown office market is starting to feel like it did in 1980, Trepp said.
He noted recent class-AAA office absorption in the downtown core has surpassed 1.3 million square feet — a figure he called the “high-water mark” set in 1980.
Most of that space, about 1.1 million square feet, was absorbed by Amazon taking possession of its new offices at The Post, which other CRE firms count among the 2023 absorption totals, given that’s when workers started to move into the building.
However, taken together, 2023 and 2024 absorption figures are showing an appetite for companies to take up residence in the downtown’s new inventory of class-AAA buildings as overall office vacancy appears to be flattening.
All-class downtown office vacancy was 13 per cent in Q1 2024, according to JLL’s Vancouver Office Insight report.
Most of the absorption has been focused on the wave of new class-AAA office buildings that have completed most recently, leaving the older stock of office towers struggling to keep tenants.
Moreover, just because space is leased doesn’t mean it’s occupied as companies continue to grapple with the return-to-office situation.
The sublease market in old and new buildings will also continue to see spaces empty and fill at unpredictable rates.
Why 2024 shares similarities with 1980
Vancouver has seen absorption spike right after peaks in vacancy, Trepp said. Historically, downtown Vancouver experiences about 350,000 square feet in absorption per year, but in the five years after peak vacancy, absorption jumps up to around 500,000 square feet per year.
Office vacancy peaked near 18 per cent back in the mid-1970s on the heels of an office construction boom, Trepp said. Absorption of that space took the next five years to catch up and then itself peaked in 1980. Things are playing out similarly now, he said.
VCII was named the Most Intelligent Office Building at the Realcomm IBCon’s Digie Awards in Las Vegas last summer. The building opened to tenants in January, 2023.
It’s a 33-storey, 370,000-square-foot office tower at 753 Seymour St. developed for the Healthcare of Ontario Pension Plan (HOOPP) and Canada Life’s Segregated Real Estate Funds.
The building includes a 29th-floor Skyline Rooftop Deck; fitness facility and yoga studio; and end-of-trip cycling facilities. VCII is LEED Platinum certified and is registered with the International WELL Building Institute.
The flight to quality
The flight companies are making from older offices to the class-AAA buildings is increasingly evident, Kavanagh said.
“Newer generation and better quality, highly amenitized office buildings are outperforming older generation office assets.”
Over the first quarter of the year, vacancy in class-AAA buildings fell, while vacancy increased in class-A office buildings and lower.
Kavanagh’s team is pleased with VCII’s current leasing. “I would say that the overall leasing velocity of the building is in line with . . . historic norms for an office building.”
He said there has been sublease activity at VCII since its initial leases were signed.
“Tenants subleasing portions of their space is also a normal activity, particularly where a tenant in a new building may have made a commitment to that space in 2018, 2019, 2020 and now it’s 2023 or 2024 when the buildings are being delivered.
“Having gone through an entire global pandemic in the process and the hybrid work structure evolution, it’s not surprising that tenants’ real estate (needs) have evolved over a five-year period,” he said.
Time for a new office building?
If the Vancouver downtown market sees 500,000 square feet of average annual absorption over the next five years, by then the vacancy in top-class buildings will fall below six per cent, Trepp said.
“That’s almost a dysfunctional-low vacancy rate,” he said, adding that a developer with the confidence, courage and capital could step up to launch the next office tower in the downtown core sooner than many think to provide new space by 2028 or 2029.
The challenge, however, is that rents would need to rise dramatically to keep pace with escalating construction and development costs to earn a return, Trepp said.
“Will the demand be there? I’m pretty sure it will be and then you can fill a building fairly quickly,” Trepp said. “My concern is . . . will (lease) rates have appreciated enough over that time frame to justify the new construction?”