Here Comes the Flight to Quality

First, there's 468k SF of available space. Second, six new office buildings will deliver in downtown Vancouver by end of 2015. And lastly, 3M SF of additional supply is proposed. These are all reasons why JLL SVP Gavin Reynolds expects a flight to quality from timeworn towers. Landlords of existing Class-A buildings will offer greater inducements, like increased upgrade allowances. And lesser-quality buildings that haven't been upgraded will suffer, says Gavin, who's been spending July with his family at their "amazing" Bowen Island vacation home and is psyched about a camping trip to the Okanagan next month.

The flight to quality shouldn't come as a huge surprise, given that nearly 70% of Class-A buildings downtown are over 25 years old. Pre-leasing for the six new buildings coming to market by 2015 is already at 73%, according to JLL, with tenants including Microsoft, Amazon, MNP (whose 36-storey tower is shown above), McCarthy Tétrault, and SNC Lavalin. The result has been a shift from a "landlord-favourable" environment to neutral. And Gavin reckons we're going to really swing into a tenant-favoured market in summer 2015  through till 2017. (Dentists: Tenants haven't had the chance to smile in a while, so prepare for some cleanings.)

Colliers market analyst Curtis Scott prefers to remain cautiously optimistic looking beyond, even as the the vacancy rate downtown climbed to 5.8% in Q2 (versus 4.4% a year earlier). It's the first real office boom in the last decade, he says. "We're curious to see where the demand is going to come from." Vacancy was more pronounced in the 'burbs, jumping to 12.2% in Q2 from 10.5% in 2013, he says. Summer means wedding season for Curtis—he's attending six ceremonies.