Vancouver office tenants sacrificing building quality for rapid transit access
Office tenants are sacrificing building quality for convenient access to rapid transit and demand for this space will continue to grow, says Jones Lang LaSalle’s semi-annual Vancouver Rapid Transit Office Index. Class B and C office buildings that are conveniently located within 500 metres (the “RTI”) of rapid transit hubs are outperforming class A buildings located outside the RTI. Overall Metro Vancouver vacancy rates are almost twice as high at buildings further than 500 metres away from a rapid transit station, compared to those located closer.
“The trend for choosing proximity to transit over building quality is not abating,” said Norm Taylor, senior vice president at Jones Lang LaSalle. “Owners of offices with close proximity to rapid transit are enjoying the benefits of higher capital valuations in addition to lower vacancy rates and higher net rental rates, while tenants are choosing location, location, location.”
The report, which analyses office properties outside the downtown core and within 500 metres of rapid transit stations in Metro Vancouver, finds that there is an average rental premium of 22.8 per cent for transit oriented office space in Vancouver, Burnaby and Surrey. Total vacancy levels within the overall Rapid Transit Index are at 6.5 per cent, down from 8.9 per cent when the inaugural report was published in Q4 2011.
“We have found that buildings near Canada Line stations have the lowest vacancy rate at 3.2 per cent, followed by the Expo Line at 5.8 per cent and then the Millennium Line at 10.7 per cent,” added Taylor. “The largest RTI vacancy decline over the last two quarters was a 4.1 per cent drop seen in New Westminster, where the ORTI (outside 500 metres) vacancy rate at 23.4 per cent is seven times higher than the RTI rate.”
Transit oriented office space is particularly scarce in Surrey, where vacancy rates for RTI offices reside at 1.2 per cent versus an ORTI vacancy rate of 26.5 per cent. In Vancouver, the gap is narrowing, with total RTI vacancy at 4.6 per cent and ORTI at 5.5 per cent. However, demand for Class B RTI space in Vancouver is higher than the better quality class A ORTI office space. Rental premiums reflect this as average asking rents in class B Vancouver RTI space have reached $25.32 per square foot compared to class A ORTI space which is set at $22.72 per square foot.