The vacancy spread between premium and lower-grade offices in Canada’s top cities has reached a record high, and Vancouver may be front and centre.
There is currently a historic 890-basis-point difference between trophy and non-trophy office vacancy rates in downtown Vancouver, Montreal and Toronto, according to a Thursday report from Colliers Canada.
“This divergence suggests that top-tier properties have entered a league that has not yet been seen before,” said the June 19 report, authored by the real estate firm’s Toronto-based office research lead, Eliezer Timolien.
The report noted Vancouver’s AAA market is “fundamentally improving faster than most major cities” following a 550-bps drop in vacancy in the last year, coupled with about 380,000 square feet of office space newly leased or sold during that time.
This underscores a “sustained preference” for high-quality facilities in Vancouver, with the city’s AAA availability expected to further contract in the medium term, the report said.
“AAA assets are poised to remain the cornerstone of demand for both owners and occupiers alike,” said the report.
While there are no universal standards, Colliers defines AAA or “trophy” offices as those with elements like iconic architecture, premium finishes, cutting-edge building systems, concierge services and ample amenities. They tend to be in central business districts close to transit and occupied by major tenants with strong credit ratings.
Examples of AAA properties in Vancouver include Vancouver Centre II, Bentall 5, The Stack and Telus Garden. According to Colliers’ first-quarter office report, there are currently two notable AAA projects under construction outside Vancouver’s central business district: The Hive in False Creek Flats and City Centre 4 in Surrey.
Class A, B and C are lower on the scale in terms of age, quality, location, infrastructure and condition, though each category has its own use case and intended tenant types, said Colliers.
As the gap widens between top-tier product and the rest, the report said prestige towers are pulling ahead and reinforcing “a growing hierarchy” in Canada’s office market.
“What was once a relatively balanced spread in demand across most building grades has given way to a decisive tilt,” the report said.
