Office sublease threat fading in Metro Vancouver as recovery takes root
August 11, 2021
A rising tide of office sublease availability triggered by the initial COVID-19 containment measures introduced in early 2020 started to recede by mid-year 2021 in downtown and Metro Vancouver and likely will continue declining as workers return to the office and tenants roll out work-from-home policies that will shape their space requirements moving forward.
An examination of both the amount of sublease vacancy as well as the number of sublease listings in downtown Vancouver and Metro Vancouver since the second quarter of 2020 revealed a number of key insights into tenant behaviour during this challenging period that should be explored.
Sublease space as a percentage of overall vacancy: Sublease vacancy as a percentage of overall vacancy downtown spiked to 36.1% at mid-year 2020 from 15.2% at year-end 2019 as a result of COVID-19, marking the highest percentage since mid-2009, which remains the record high at 47% (followed by year-end 2008 at 39%). While sublease vacancy as a percentage of overall vacancy downtown ticked up to 36.7% at year-end 2020, by mid-year 2021 it had fallen to 30.9% and had not come close to approaching the levels recorded downtown during the Great Recession of 2007-2009. On a regional basis, sublease vacancy as a percentage of overall vacancy in Metro Vancouver climbed to 22.4% at mid-year 2020 – the highest since mid-year 2009 (28%); and while the metric inched higher to 27.7% at year-end 2020, the percentage of sublease vacancy of overall vacancy has since fallen to 26.2% at mid-year 2021.
Total amount of downtown sublease vacancy: Sublease vacancy started reaching record lows in 2016 and, by 2018-19, was regularly less than 100,000 sf in a downtown market of 23 msf. However, the impact of COVID-19 resulted in an initial spike to more than 290,000 sf of vacant sublease space at mid-year 2020 – a trend that continued through the year with a record high of 559,951 sf at year-end 2020, a volume which even surpassed the previous record set in 2009 on a total square footage basis. But by mid-year 2021, the total amount of vacant sublease space in downtown Vancouver had fallen to 498,608 sf.
Number of sublease listings in Metro Vancouver and Downtown: Reviewing the number of listings to sublease space in Metro Vancouver and downtown since the second quarter of 2020 revealed a number of insights.
i) Two markets emerged based on size of offering: There were 96 listings for sublease space in Metro Vancouver in the second quarter of 2020, including 52 for premises greater than 4,500 sf and 44 for those less than 4,500 sf. Through the pandemic, the quarterly volume in the two size ranges fluctuated independently of each other. For listings of sublease space greater than 4,500 sf, the peak (71) came in the first quarter of 2021; however, the fewest number of listings (21) followed in the second quarter of 2021. For listings of sublease space less than 4,500 sf, the peak (81) was in the fourth quarter of 2020 followed by the fewest number of listings in the first quarter of 2021 (23). In both cases, the peak in the number of listings immediately preceded the fewest. The peak occurred first in units less than 4,500 sf and then declined notably. A similar pattern, albeit a quarter later, was noted in units greater than 4,500 sf. The peak in the number of listings for all sublease space (127) occurred in the fourth quarter of 2020 and had subsequently dropped by 60% by mid-year 2021 (51).
ii) Unique factors at play in downtown’s sublease market: There were 81 listings for sublease space in the second quarter of 2020, including 44 listings for premises greater than 4,500 sf and 37 for those less than 4,500 sf. This marked the peak number of sublease listings downtown during the pandemic. While there was an uptick in the number of sublease listings downtown in Q1 2021 (63), that figure plunged 64% to 23 by mid-year 2021. In the beginning there were more listings for sublease space less than 4,500 sf than for those greater than 4,500 sf – a pattern that held until Q1 2021 when the number of listings for spaces greater than 4,500 sf spiked to 49 (compared with just 14 for spaces less than 4,500 sf). However, the number of listings for downtown sublease space greater than 4,500 sf had plummeted 82% by mid-year 2021.
Andrew Petrozzi is an Avison Young Principal and the firm’s British Columbia Research Practice Leader. He is based in the company’s office in Vancouver, B.C.