Metro Vancouver office market report

Metro Vancouver office market fundamentals

01. Downtown latest new supply cycle has come to an end

Since early 2020, the Vancouver Downtown office inventory has expanded by nearly 3.8 million square feet (msf), marking the largest development surge since 2015. Six new buildings were added in 2015, providing over 1.7 msf of much-needed trophy office space. Following the completion of these major projects, the vacancy rate dropped significantly from 9.3% in Q4 2015 to a low of 2.0% in Q2 2019, which spurred the current 2020-2024 development boom.

Despite the influx of new office space completed in 2015 and 2024, Downtown’s office market has remained resilient, even with the lingering effects of post-pandemic remote work flexibility. This resilience is bolstered by strong tenant demand for high-quality space. The availability rate for class AAA has declined from 15.1% to 12.2% year-over-year, demonstrating tenants’ preference for premium office environments.

02. Office conversions on the rise

As vacancy rates in newer office buildings continue to decline, some outdated properties are exploring alternate options. While residential conversions have been prevalent in other Canadian markets, they have been less common in Vancouver. However, with the conversion of smaller office spaces like 225 Smithe Street and 576 Seymour Street six months ago, larger projects are now emerging, particularly for hotel use, which is in high demand in Vancouver.

One notable example is 1111 West Hastings Street, recently acquired by Reliance Properties and Germain Hotels for conversion into a hotel, to be opened in 2029. Located within Vancouver’s Downtown District (DD), the property benefits from land-use regulations that permit hotel development without requiring rezoning. With several other high-vacancy office buildings also falling under this designation, more conversions could follow.

03. Economic challenges have impact on new development

Since December 2024, the Bank of Canada (BoC) has lowered the key interest rate by 50 basis points, bringing it to 2.75% as of the end of Q1 2025. The BoC cited impending tariff increases on Canadian goods as a primary reason for the most recent rate cut.

For new developments, these tariffs are expected to drive up construction costs and, in turn, raise the capital requirements for launching projects. According to Statistics Canada, imports of forestry products and building and packaging materials surged by 21% from December 2024 to January 2025, while exports increased by 12.4% over the same period.

In addition to concerns over rising costs, developers are assessing the potential impact of tariffs on their projects. However, it is evident that a strong pre-lease commitment will be required to drive development forward.