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Increased capital stores, low interest rates, and record stock market valuations have fuelled new interest in commercial real estate investment opportunities.

Traditionally, investors have often been attracted to Vancouver’s supply-constrained, high-demand office and multifamily markets for their stable occupancy, steady rental rate growth and exceptional liquidity.

However, limited supply and ever-compressing yields in traditional asset classes have spawned increased interest in opportunities outside the conventional office space.

Since the onset of the pandemic, several asset classes have experienced significant gains. A notable and perhaps unexpected shift was the life sciences investment sector, where we are now witnessing firsthand the development of this relatively new asset class growing in both availability and demand.

It has now been approximately twelve weeks, or the equivalent of one quarter, since we were all asked to work from home and social distance to help stem the spread of the COVID-19 pandemic. From that surreal beginning, few of us would have predicted the efficacy of the global mobilization that shuttered businesses, sporting events, air travel and international borders. Nor could we have predicted the myriad of government support programs, from interest-free loans to commercial rent relief. In the long term, all of us will be asked to repay this government largess in some form of higher taxation, but that is a topic for another study.

For now, the short-term deep freeze that has idled our economy is beginning to melt as we slowly return to work, and with businesses haltingly reopening, we are finally getting a glimpse into our new normal. Accordingly, we are pleased to provide you with our Q1 study on the effects of the health crisis on the downtown Vancouver office market.

Some highlights:

• While demand has diminished for now, we expect the pre-COVID demand trend to resume to a large degree as the economy begins to open up, given the strong underlying macro-economic fundamentals.
• With only four headlease spaces greater than 20,000 square feet available in existing downtown product, the Vancouver office market is uniquely positioned to weather short-term volatility stemming from the COVID-19 pandemic.
• COVID-19 has resulted in a proliferation of subleasing activity, from 37 opportunities at the end of Q4 2019 to 90 today. These subleases represent just over 500,000 square feet of space and increased the overall vacancy rate to only just over 4%. This makes it one of the strongest office markets in the world from a vacancy perspective.
• With current low vacancy rates, coupled with the long lead time before new office buildings under construction are complete, we expect a minimal negative short-term impact on office rental rates throughout Greater Vancouver.
• A conservative forecast scenario, including the newly-delivered sublease space, would place vacancy rates at a peak of only 7% by 2024, still under the 8% that represents a balanced office market.
• Global quantitative easing should result in a long-term low interest rate environment resulting in capitalization rate compression, with yields for Vancouver office product remaining at or below pre-COVID levels.

Report Highlights:

• British Columbia added 79,025 people to their population in 2019, a 1.6% increase from the previous year, the majority of which can be attributed to international migration.
• While COVID-19 is affecting processing times and disrupting in-person components of the application process, there are currently no plans from the government to halt immigration to Canada.
• However, non-essential visa applications are being suspended, with exemptions for international students and foreign workers in agriculture, medical, and food supply chains.
• Admissions of permanent residents increased at roughly 12% YoY from 2017 to 2018, with continued growth into 2019, reaching an all-time high of 341,180 admissions.

Over the last several weeks, NIT-Vancouver has been adapting to CBRE’s work-from-home policy, and what a difference a few weeks make! While we could not have anticipated the extraordinary conditions that we are now operating under, there seems to have been a notable shift in thinking and more positive discussions beginning about the potential for restarting the economy.

The COVID-19 pandemic has challenged our ways of thinking and working like nothing we’ve experienced before. And while there is still a lot of uncertainty, we remain hopeful and we are prepared to assist our clients who may be ready to begin exploring new opportunities.

Though we remain positive, we understand that this may be a sensitive and challenging time for many of us. Accordingly, unless there are extraordinary circumstances, we are currently advising our clients to delay the marketing launch of their assets for the next 60-90 days, until the market provides signal that buyers are actively pursuing new acquisitions again. Our continuous contact with our colleagues and clients from around the globe will enable us to make timely recommendations.

In the meantime, we are doing everything we can to ensure the success of our clients and to be prepared to begin the marketing process when the time is right:

• We are utilizing this downtime to prepare comprehensive and compelling marketing materials that feature high-quality professional photography, an in-depth exploration of the property, and an analysis of the market and location;
• We are still actively working with our third-party vendors to develop studio-quality video with voice over highlights and music accompaniment, which helps provide a richer introduction to the asset;
• We are utilizing our in-house expertise to build dynamic and interactive virtual property tours that will enable business continuity and allow us to meet the specific needs of our clients. No other firm has this technology in-house and we can offer it to clients seamlessly!
• We are sourcing and populating comprehensive data rooms with plans, reports, and market data for potential purchasers;
• We are developing new target market buyer profiles and distribution lists that will help capture new buyers and maximize existing ones during our marketing process;
• We are liaising with our global CBRE network and providing ongoing feedback to our clients to reach a consensus on ideal formal marketing launch

Please don’t hesitate to reach out to us during this time, and please let us know if there is anything we can do to help support you. We are quickly adapting to the changing circumstances, and we are ready and able to fulfill your business needs.

We look forward to connecting with you soon, and hope you are all staying healthy and happy.

Sincerely,

CBRE National Investment Team, Vancouver