Why Office Vacancy Will Rise

C&W reps Telus Garden, one of seven towers under construction downtown, and it's 93% leased (that includes a big announcement coming down the pike shortly—Mark couldn't reveal the details, but we suspect who it is: a big tech company that will be taking 157k SF...secrets are fun). Other buildings going up are over 60% pre-leased. The new buildings don't even have glass on them yet, yet there's a pent-up demand, he says. "That's new for this market."

A big part of the appeal are the features these new towers are offering tenants—in Telus Garden's case (above), 10.6 foot ceilings (almost high enough for a regulation NBA basket, if anyone wants to see our sky hook), open windows, raised floor system, and LEED Platinum cert. Mark is front and centre in a new office outlook report issued by his firm that looks at office occupancy growth in major Canadian cities. The outlook for Vancouver: darkening skies for a short while, then the sun comes out. With the development boom, occupancy growth is expected to remain slow through 2014, putting upward pressure on vacancy rates; however, demand should pick up in 2015.

If things go the way they appear to be going with the rebound in the US, "some of these larger technology companies will come up here and realize what great talent is," he says, especially on the engineering and gaming side. With that, tertiary industries will follow—accountants and lawyers, all of whom will need space. For Mark, pent-up demand is everywhere, and new product, like the rendering of 745 Thurlow above, has brokers excited. The question will be how fast the space left behind, once companies move their digs, gets snatched up (vacancy is expected to hit low double digits in '15). Vancouver's vacancy rate in 2013 was 5.3%, and is projected to move to 7.7% in 2014, according to the report.

Canadian pension funds and firms are leading the charge in pursuit of foreign assets, according to a JLL report. We spoke with one of its authors, Lucy Fletcher, VP of the firm's international capital group. One way is entering into "smart partnerships" abroad—JVs, or more passive investment, with companies that understand a target market. The deals aren't just big one-offs; smart partnering allows Canadian investors the inside scoop on future deals in that particular market, she says. The norm for Canada has traditionally been in the US and Europe, but we're now expanding into Asia Pacific, Latin America, and Southern and Eastern Europe. (The athletes will have something to talk about at the Sochi Olympics.)

The top 10 largest pension funds in Canada—led by the Canadian Pension Plan Investment Board (above, we snapped its Americas head of real estate investment Peter Ballon with Oxford Properties Group SVP of investments Andrew Trickett in New York)—collectively manage in excess of $800B of assets, making them one of the largest asset pools in the world. In terms of Vancouver, Lucy says there's a lot of private equity and high net worth groups actively seeking yield in the US. And there remains a lot of Chinese capital seeking out development opportunities in Vancouver, she adds. The challenge for foreign investors looking to come to this market is product in the core that rarely trades and has a tight policy in terms of development.