The Vancouver office market has certainly established itself as a tech hub, ranking eighth in North America and second to Toronto in Canada. Greater Vancouver is home to 115,400 tech jobs, according to CBRE’s latest "Scoring Tech Talent" report, the equivalent of 7% of the total employment pool, a number that nearly triples when adding in associated tasks such as business development, administration and marketing.
Vancouver has been trending upward in the tech report and has weathered industry ups and downs over the years as the industry has matured through several challenging economic times, most recently revised stock valuations earlier this year. These challenges often result in harder-to-source investment and a wide range of cost-cutting measures.
For some deep-pocket tech companies, less competitive leasing and labour markets over the past months created opportunities to increase headcounts, secure more desirable space and even acquire smaller firms that may have been struggling with scaling their businesses. Some significant space signings in the downtown Vancouver market occurred in the latter half of 2022, which led to sizable leasing activity, culminating in 745,000 square feet in the second quarter and 765,000 the third quarter of 2022. As much as 40% of this space went to well-established tenants falling within the TAMI sectors of technology, advertising, media and information.
Nevertheless, vacancy rates in Vancouver’s downtown market are fast approaching 10%, a far cry from the 2% to 2.5% recorded in late 2019 due to the pandemic and the arrival of new supply. Three million square feet of additional space is scheduled to arrive on the market before the end of 2023 and will ensure that vacancies continue to climb throughout the year, even if the current level of leasing is maintained. Construction completions are minimal from the start of 2024 onward, which will be a significant aid in getting the market back to more balanced conditions — again, if the current level of leasing is maintained.
As economic headwinds continue to blow and the possibility of entering a recession increases (if we aren’t in one already), what becomes of Vancouver’s office market in the face of growing and sometimes considerable layoffs within the tech industry? If the current pace of leasing to TAMI tenants accounts for 25% to 40% of activity, depending on the quarter, the slowdown in leasing activity could be significant. Space reductions will be taking place and will lead to further growth in available sublet space, currently trending toward 1 million square feet and potentially the recipient of some significant new additions as new buildings wrap up construction and lead to tenants possibly electing to market space for sublet.
One of the biggest unknowns today is the incoming supply at The Post, comprising 1 million square feet in two towers designed for 6,000 employees, which was preleased by Amazon in September 2020. The first phase is due in mid-2023. Should the space arrive on the sublet market, available sublet space downtown would double in size. Even if Amazon sublets one tower at a time, only a handful of tenants worldwide could make a space of that size work in the Vancouver market.
Also, Vancouver could be a reasonable candidate for consolidation. With the deep tech pools of Seattle and San Francisco relatively close, tenants might ask themselves if rolling their operations into a regional U.S. headquarters doesn't make more sense. Or rather, if they maintain any space in the historically cheaper Vancouver market, they may ask if a more flexible space in the city isn't more reasonable.
Vancouver continues to be a place of innovation and tech entrepreneurship. Many tech firms have been founded in the Vancouver area, and many more will continue to be turned out. Tech layoffs often yield new ventures by those very employees that are cut loose, the result of cost-cutting. Total venture investment in tech firms in British Columbia has fallen off in 2022, to $850 million, according to briefed.in, however, that is on the heels of an impressive 2021, when $4 billion came into the market. Most of this funding remains in the seed stage, meaning that there are still many well-funded startups working toward establishing user bases and consistent revenue. These firms could represent significant players in the future of downtown Vancouver’s office market, in addition to the tech giants that have been part of the industry fabric and the downtown market for years. Rolling back expansion plans seems much more likely than consolidation for Vancouver tech firms.
Difficult times are ahead, certainly. However, the Vancouver market remains one of the few major markets with single-digit vacancy rates — for now. The majority of the tenant base is made up of firms employing fewer than 100 employees from a wide range of industries, including finance, law, natural resources, real estate as well as technology, including gaming and visual effects. The long-standing diversity in downtown Vancouver’s office market will minimize the pain felt due to any potential tech-related layoffs within the market. Climbing vacancies are a certainty, and notwithstanding certain large swaths of sublet space coming to market, Downtown remains in comparatively good shape to weather what is expected to be a challenging 12 to 18 months ahead.