Downtown Vancouver Sublease Office Vacancies at 30-year High, and Could Increase
This article originally appeared on the Vancouver Sun website.
Downtown Vancouver sublease office vacancies at a 30-year high, and could increase
One of the quickest ways to reduce expenses is to see if office space can be subleased.
Publishing date: March 27 2023
The amount of sublease office space available in downtown Vancouver is currently at a 32-year high, and with further increases expected, it could reach levels not seen since the mid-to-late 1980s.
“It’s quite something really,” said Vancouver-based Ross Moore, a managing broker at real estate company Cresa, which advises companies on leases.
The bulk of the subleases have been coming from technology companies, which have been struggling with cost-cutting and layoffs, other observers say.
Amazon said last week it will lay off 9,000 more employees in the next weeks. This is on top of an earlier round of layoffs that started in January and impacted more than 18,000 jobs.
Brokers in Vancouver say there is no word from Amazon about whether it will sublease its downtown Vancouver space. At the end of 2022, about 77 per cent of downtown Vancouver office space over 10,000 square feet available for subleasing had been vacated by technology companies with major names such as Plentyoffish ULC, Microsoft, Shaw, and Avigilon, according to Avison Young.
This, in part, could be due to some of these companies overextending their spending the year before in 2021 when markets first bounced back after the COVID-19 lockdown was lifted. Some of these tech companies are having to trim expenses to offset their initial bets.
It’s also the case that employees at technology companies tend to be very mobile, making it even easier for these companies to reduce rental expenses by subleasing space.
“There’s increased scrutiny, from a financial standpoint, on technology firms. More today than there ever has been. There are cost-cutting measures almost across every single technology tenant in the marketplace,” said Avison Young principal Glenn Gardner.
One of the quickest ways to reduce expenses is to see if office space can be subleased, he said.
Even in the best of markets, which would in recent times have been before the pandemic around the last quarter of 2019, there is a sublease market because groups are always re-evaluating how to use their spaces, said Gardner.
However, in 2019, subleasing vacancy as a percentage of total office vacancy was just over 15 per cent. Now, in the first quarter of 2023, it has grown to just over 29 per cent of total office vacancy, up from 25.8 per cent in 2022, according to Avison Young.
“There’s definitely a lot of talk about outsized hiring sprees that happened in the last two years and there’s a sort of normalization that’s happening because of that now,” said Jason Kiselbach, managing director at CBRE Group Inc.
“But the context is that, even with all the sublease space on the market in downtown Vancouver right now, we have one of the lowest vacancy rates in North America out of any major market.”
Downtown Vancouver BIA interim president Jane Talbot said in an email that with the overall vacancy rate of 9.8 per cent at one of the lowest in Canada’s metro cores for 2022, “there is more opportunity for new businesses to enter the downtown market — something that we have needed for a long time.”
Moore said companies are also opting to pay a premium for either shorter leases, such as ones that are three years instead of five, or for the right to terminate earlier on longer leases, such as in the third or fifth year of a 10-year arrangement.
A bigger story, he said, is tenants that are ‘rightsizing’ when their leases end.
“More companies will adopt a ‘hotelling’ model, where those that only go into the office on average once a week will sit at a bench and those that are in the office more times per week will have a permanent workstation. Clearly, this will lead to a material reduction in (overall) demand, at least in the immediate term.”
It’s not easy to gauge how many or which tenants will give space back when leases expire because of this shift in need. For now, seeing the trend by tracking subleases is a lot easier, Moore said.