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| Population 2,314,000 | ||||
| Employment 1,234,000 | ||||
| Unemployment Rate 4.1% | ||||
| Retail Sales $25.4 billion | ||||
| Consumer Price Index 2.9% | ||||
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| ↑ | Office | ↓ | ||
| ↓ | Industrial | ←→ | ||
| ←→ | Retail | ←→ | ||
| Overall Cap Rates ↑ |
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| Source: DTZ Barnicke | ||||
| 2007 | 2008e | 2009f | 2010f | |
|---|---|---|---|---|
| Real GDP* | 3.0% | 1.3% | 2.4% | 3.2% |
| Population* | 1.3% | 1.2% | 1.4% | 1.4% |
| Employment* | 3.0% | 0.9% | 1.2% | 2.1% |
| Unemployment Rate | 4.0% | 4.1% | 5.0% | 4.8% |
| Personal Income per Capita | $35,388 | $36,796 | $38,000 | $39,320 |
| Total Housing Starts | 20,700 | 20,300 | 16,800 | 17,100 |
| Retail Sales* | 5.2% | 0.2% | 3.9% | 4.9% |
| CPI* | 2.1% | 2.9% | 2.2% | 1.8% |
| Source: Conference Board Canada | *Percentage Change from Previous Year | |||
Market overview
The economic growth rate declined for the third consecutive year, with GDP expansion of a mere 1.3% in 2008, down 170 basis points down from 2007. The slowing of growth in Vancouver can be attributed to a slowdown in the goods-producing industries caused by the strength of the Canadian dollar, a reduction in the output of the forestry industry and a significant slowdown in the number of housing starts. Housing starts fell in 2008 from near record high levels experienced in 2007, and are expected to decline further in 2009. Unemployment hit record low levels in 2008, but is expected to rise again in 2009. Due to a drop in consumer confidence, retail sales are forecast to decline in 2009.
GDP growth is expected to remain steady in 2009 due to the offsetting effect of the decline in the Canadian dollar stimulating manufacturing and forestry. Also, significant investment in infrastructure and preparation for the Olympics will continue to drive non-residential construction. Some of the largest projects include the $178 million Richmond speed skating oval, the $315 million Vancouver Olympic Village, the $883 million expansion to the Vancouver Convention & Exhibition Centre, the $110 million Harbourside Business Park, and the $2 billion Canada Line.
Zoning restrictions and community opposition have limited the growth of big box retailers in Vancouver, however in 2009 Wal-Mart will be opening its first location in Vancouver.
Office
While the overall vacancy rate in 2008 was 5.3%, the Downtown core remained virtually fully occupied with a mere 1.9% vacancy. Finding space Downtown continues to be a challenge as a result of limited supply and no new developments. The Jameson House, with 55,000 square feet of office space slated to come onto the market in 2010, has now been put on hold due to market conditions.
In contrast to downtown, the suburban markets remained active with six new buildings coming to market in 2008, adding 416,000 square feet to the inventory. This new supply offset positive absorption and contributed to a 170 basis point rise in suburban office vacancy.
In 2009, Metro Vancouver’s overall vacancy will climb slightly higher, due to an estimated 867,400 square feet of new supply expected to come to market, of which only 45% was pre-leased at the end of 2008. Rental rates in the downtown core will decrease slightly due to an expected increase in subleases coming onto the market in 2009. Suburban markets rates will also see a slight dip due to new supply delivery.
A combination of record high rental rates in the Downtown core and improvements to Translink’s accessibility and commute times will have some downtown tenants considering a move to the less expensive suburban areas. Newly built LEED Certified buildings, such as The Broadway Tech Centre, are also attracting tenant interest due to the lower operating costs. Companies like Morneau Sobeco and The Internet Marketing Centre relocated from the Downtown core to the suburbs in 2008 and we expect more of this relocation activity in 2009.
Industrial
Industrial vacancy increased slightly during 2008, from 2.1% to 2.3%. This marginal increase was due primarily to the fact that newer speculative developments did not lease up as quickly as expected. An overall slowdown in transaction activity and growth due to global economic conditions was also a factor. Difficulty in obtaining financing for sale transactions should result in an increase in lease transactions and put downward pressure on the vacancy rate throughout 2009.
Despite increasing vacancy in 2008, tight market conditions resulted in steady rental rate increases in most submarkets throughout the year. In some cases this created discrepancies between tenant expectations and landlord demands. As global economic changes continue to impact Vancouver, many landlords have begun adjusting asking rental rates and offering attractive inducements in order to secure short-term tenancies. Expect these trends to continue into 2009.
Approximately 78 new industrial buildings were completed in 2008, bringing 4.8 million square feet to the market. An additional 62 buildings are scheduled for completion in 2009, and are expected to proceed as scheduled despite economic uncertainty. Looking forward expect speculative building developments to become increasingly rare, as developers seek to decrease risk. Build to suit and strata developments will continue to be the main source of new industrial supply in Metro Vancouver.
| Office Inventory | 39.3 million |
| Office Vacancy | 5.9% |
| CBD Class A Vacancy | 1.9% |
| Industrial Inventory | 170.4 million |
| Industrial Vacancy | 2.3% |
| Source: DTZ Barnicke and Conference Board Canada | |
Investment
Similar to the rest of Canada, Vancouver experienced a healthy investment market early in 2008, but began to show signs of slowing in early Q3. Demand for quality product exceeded the supply which made finding good investment opportunities difficult. Simultaneously, a decline in the availability of credit made it difficult to raise the capital for those that could identify a worthy investment.
Income producing assets and owner user properties became the most sought after product in the last half of 2008. Cap rates are expected to rise to the 7% or 8 % range in 2009 due to a decline in the number of qualified buyers and an increase in owners forced to sell given the credit market situation. This will create opportunity for cash rich buyers to purchase product at a discount. In turn, expect the majority of investment activity in 2009 to come from local private groups with large amounts of cash available for the sizable deposits needed.
Retail
The retail environment was extremely active in 2008, despite a significant decline in retail sales growth from 5.2% in 2007 to 0.2% in 2008. A large number of retailers have expanded their presence, including H&M, Canadian Tire, Best Buy, and Winners. With the growing interest in organic foods, health oriented grocers have expanded their locations including Whole Foods, Urban Fair, Capers and Choices.
New retailers who entered the Vancouver market in 2008 included Apple, with an anchor store location in Pacific Centre, and Michael Kors in Oakridge Shopping Centre. In 2009 we will also see the doors open to the first Brooks Brothers, Pottery Barn Kids, and Hollister locations. Zoning restrictions and community opposition have limited the growth of Wal-Mart locations within Vancouver’s city limits. However, in 2009 Wal-Mart will open its first location close to Boundary Road and Granview Highway.
Robson Street continues to be the most popular retail location in Vancouver and, as such, continues to command the highest retail lease rates, upwards of $200 per square foot. The Canada Line, a new light rapid transit system connecting the Vancouver airport with the Downtown Core, is attracting growth adjacent to completed and future stations. The future station at Cambie and Broadway has already attracted large tenants such as Save-on-Foods, Canadian Tire, Whole Foods, and Home Depot. The completion of the line in 2009 is expected to continue to fuel retail expansion in the area.