Research 
In today’s evolving office landscape, tenants, landlords, and developers are adapting to shifting market dynamics with unique approaches to meet current demands. In this post, we’ll explore the latest market trends from the perspectives of three key stakeholders: occupiers, landlords, and developers.
Office Occupiers – Business Owners
1. Flight to Quality
The “flight to quality” trend is pushing companies to opt for high-amenity office spaces, leaving older Class B and C spaces with higher vacancy rates due to outdated features. This trend is reflected in ongoing negotiations for a few significant deals, particularly in premium buildings, as tenants prioritize quality.
As seen in our Q3 2024 First Movers Report, Equitable Bank recently leased approximately 8,500 square feet on the 14th Floor of 601 West Hastings Street, an amenity-rich class AAA building. They relocated from 777 Hornby Street, a class B building, highlighting the “flight to quality.”
2. Increased Preference for Subleases
Demand for subleases is on the rise as companies seek flexible, cost-effective options that align with hybrid work models. Subleases provide the advantage of lower rents and shorter lease terms, appealing to tenants looking to adapt quickly to changing workspace needs. This trend is evidenced by the fact that subleases spend an average of only 276 days on the market, compared to one year for headleases.
3. Demand for Ready-to-Occupy Spaces
Tenants are increasingly prioritizing turnkey, move-in-ready spaces to avoid high fit-out costs and quickly visualize their layout, especially as leases near expiration. With hybrid work models and budget constraints, flexibility and cost savings are crucial, making shorter lease terms and easy move-ins highly attractive as they allow tenants to adapt their workspace without long-term commitments.
To meet this demand, an increasing number of landlords are listing ready-to-occupy spaces such as 1075 West Georgia Street, which is offering several fully built out and quick-to-occupy suites through their Ready Set Go (RSG) model suite program. A variety of environments were crafted through this program to address the top requests in the return-to-office process, such as collaborative seating areas and quiet rooms.
Landlords – Building Owners
1. Competition Among Landlords
With over 414,000 square feet of vacant headlease space this quarter, landlords face rising competition as tenants increasingly opt for subleases, which offer lower costs and shorter lease terms. Economic uncertainties—like a potential downturn, fluctuating workplace occupancy, and rising construction expenses—are accelerating this trend.
This trend is highlighted by several significant recent sublease transactions, including Sanctuary AI’s sublease of approximately 32,288 square feet at 285 West 5th Avenue, Transportation Investment Corporation’s sublease of around 37,474 square feet at 411 Dunsmuir Street, and HTEC Hydrogen Technology’s sublease of about 29,000 square feet on the 4th floor of 2985 Virtual Way.
2. Modernizing Outdated Spaces
Vancouver landlords are meeting the demand for ready-to-occupy office spaces by offering show suites, helping tenants minimize capital expenditures. To bridge the gap between high-quality and generic spaces, they’re investing in capital improvements like upgraded amenities and energy-efficient designs. These enhancements are essential for staying competitive and boosting the long-term appeal of their properties.
815 West Hastings Street is currently offering several ready-to-occupy units, designed by M Moser Associates. These units are to be delivered in turnkey condition to the tenant’s design specifications with high quality modern improvements.
3. Boosting Tenant Attraction Through Increased Inducements
Some sublease landlords are offering free rent to make their spaces more attractive and secure tenants quickly. In response, headlease landlords commonly provide generous tenant improvement allowances during lease negotiations. Class A and AAA landlords in Vancouver are also maintaining base rents, despite high vacancy rates, by offering record-high incentives and lower deposits for leases of 10 to 15 years to remain competitive.
Real Estate Developers
1. Construction on Hold
The completion of several AAA office towers in 2023 and early 2024 reflects a robust office development cycle. However, the influx of new space has led many developers, including those for 1166 West Pender Street, to pause proposed projects to reassess plans. Developers are waiting for inflation to ease, which would reduce construction and development costs, making projects more financially viable. Limited pre-leasing activity, driven by tenant uncertainty around space needs, is also contributing to delays in construction projects.
2. Office Conversion
As Vancouver’s office sector faces a downturn, with high vacancy rates and shifting workplace trends undermining the financial viability of office projects, developers are increasingly turning toward rental, residential, and hotel conversions. Converting underutilized office spaces into rental units offers a profitable solution to Vancouver’s housing crisis, allowing developers to maximize returns while efficiently repurposing existing infrastructure. Additionally, developers are pursuing hotel projects to meet the rising tourism demand, with projections by Destination Vancouver calling for 20,000 more hotel rooms by 2050. These shifts also present opportunities for mixed-use developments that integrate residential, hotel, and retail spaces, supporting the emerging needs of Vancouver’s growing population.
Local developer Strand has recently submitted a new rezoning application for their site at 360 West 2nd Avenue, which was previously approved for rezoning in 2021 for a 7-store industrial and office project. Office market conditions and the adoption of the Broadway Plan led to design changes and incorporating 203 residential rental units and removing most of the proposed office space.
As the Vancouver office market continues to evolve, occupiers, landlords, and developers are implementing unique strategies to meet current demands. Floorspace is here to guide you through the ever-shifting Vancouver office landscape. Whether you’re looking to lease, sublease, or invest, our expertise can help you navigate these trends effectively. Contact us today to explore your options!
To learn more about notable office leases in Vancouver, check out our latest First Movers report!
