The unprecedented momentum in Canada’s leading commercial real estate market will carry it well into 2018 and likely further, Vancouver analysts say.

Vancouver has Canada’s lowest office vacancy rate, and new office towers are pre-selling space at record-shattering prices.

The largest industrial developments in Metro Vancouver’s history are underway as industrial lease rates increase and strata values skyrocket.

Eager hotel developers are waging – and losing – battles for land against “insatiable demand” in the residential rental sector.

Move over, housing; commercial is the new real estate boom.


Vancouver’s downtown office vacancy rate plunged 50% in 2017 to 5%, the lowest since 2013, and it is expected to remain at that level for the next three to four years.

The demand has moved up the launch for new office towers, but the earliest won’t open for at least two years. Strata prices and lease rates are therefore expected to top all-time highs in 2018.

Latest example: a new 30-storey Bosa Development tower sold out 170,000 square feet of Class AAA strata space in less than a week in November at an unprecedented $2,000 per square foot.

The downtown office sector is so strong it has even turned blue-chip conservative pension funds into big-time speculators.

Healthcare of Ontario Pension Plan is backing the 33-storey Waterfront Centre 2, and the Ontario Municipal Employees Retirement System is behind a new nine-storey office building and a near-500,000-square-foot tower on Melville Street. All three are being built without pre-leases in place.

The biggest office deal in 2017 involved the Ontario Pension Board and Workplace Safety and Insurance Board together taking a 25% share in half of Cadillac Fairview’s downtown office portfolio, which sold for $1.25 billion.

There appears to be no lack of tenant demand, particularly from Vancouver’s expanding tech sector.

Tech giant Amazon (Nasdaq:AMZN) recently pre-leased 150,000 square feet in Oxford Properties’ new office tower on Dunsmuir Street, and tech companies have taken about half of the new downtown space in the past two years.

Morguard, meanwhile, is said to be itching to start a new 25-storey office tower on West Hastings.

Commercial agents say the sales performance of the new Bosa tower has office developers erasing and rewriting their pro forma: it is expected that office lease rates for top space could edge up over $50 per square foot in 2018 for the first time.

But some analysts caution that 2017 – when office sales hit a record $1.86 billion in the first half – might have marked an investment peak.

“The re-emergence of longer periods of due diligence and more measured financial analysis may lessen the exuberance, haste and impatience that [has] characterized much of the transactional volume,” noted Avison Young in a September analysis.


At 1.7%, Metro Vancouver has Canada’s second-lowest industrial vacancy rate (behind Toronto), but the real news is the sudden spike in the region’s industrial lease rates.

They surged 12% this year from 2016, the highest increase in three decades, to an average of just under $10 per square foot. Vancouver industrial strata prices are hitting $700 per square foot and cresting over $300 in the suburbs.

And, even with a limited supply, demand is on a record pace.

“Usually, in a market with so little available space, you would expect to see a slowdown in leasing activity as tenants opt to renew and stay put as finding space becomes harder,” said CBRE executive vice-president Norm Taylor. “So it’s been a surprise to see that absorption is keeping pace with last year’s record-setting numbers.”

Taylor and others expect the industrial pace to accelerate into 2018.

“With [Metro] Vancouver’s economy firing on all cylinders and next year’s GDP growth forecast to lead the nation, we will continue to attract top companies,” Taylor said.

Next year will test the appetite as a 170-acre, $350 million industrial park – the largest ever in Metro Vancouver – starts inking leases for its one-million-square-foot Phase 1.

“We aren’t building on speculation,” confirmed Tom Land, CEO and president of Montrose Properties Ltd., of its Richmond Industrial Centre, though he concedes it wouldn’t be much of a gamble in one of Canada’s biggest and tightest industrial zones.

More than three million square feet of competing space is either proposed or under construction in Richmond. As is the case across most of Metro, some is strata and nearly all is speculative.


The sale of B.C. retail assets achieved record heights when 55 retail transactions valued at $2.7 billion were completed in 2017’s first half. The dollar volume was primarily attributed to the sale of Oakridge Centre for $961.3 million and a 50% interest in Pacific Centre valued at $650 million for a total of $1.61 billion.

Retail deals captured half of the overall dollar volume and commercial real estate sales in the first half, according to Avison Young.

International investments in Shape Properties’ Amazing Brentwood retail development could be a harbinger for 2018 investment action.

“Retail assets remain in extraordinarily high demand in core and suburban markets alike with strong pricing coaxing formerly reluctant vendors [to sell],” Avison Young noted.

Battle for land

It is not uncommon now to see older Metro Vancouver apartment buildings selling for north of $400,000 per suite, and total sales could hit a record level above $745 million in 2018. The region has a near-zero rental vacancy rate and the highest rents in the country.

“It’s an exciting time in Metro Vancouver and the entire province, and I foresee a strong and positive outlook moving into 2018 and beyond,” said James Blair, vice-president, multi-family, JLL Capital Markets. “There is insatiable demand by investors seeking centrally located apartment rentals.”

Demand for residential development sites, however, threatens the expansion of Vancouver’s hotel sector, which leads the nation with a 93.6% occupancy and average daily room rates of $219.

But it is tough to make a new hotel viable when land prices are topping $450 per square foot.

“Hotel development can’t compete head-on with residential; the two are in a war in Vancouver,” Curtis Gallagher, a broker with Cushman & Wakefield Ltd., told Business in Vancouver.

“I don’t think potential stand-alone new [hotel] builds will pencil out,” said Azim Jamal, co-founder and CEO of Pacific Reach Properties Ltd., which bought the Rosewood Hotel Georgia in July in a blockbuster $145 million deal.

The option is to buy older hotels and upgrade them or to squeeze them into mixed-use projects: the most dramatic example being the 202-room Exchange Hotel now being enclosed within the Exchange office tower in downtown Vancouver.

In 2018, in Metro Vancouver, the challenge for all commercial and industrial real estate is finding space in what should continue to be the hottest market in Canada.