NAIOP welcomed insights on office market trends and predictions for 2020 from an expert panel during its January breakfast meeting. Providing lively discussion, Matt Carlson moderated the panel that included Maureen Neilly, Peter Jenkins, and Glenn Gardner. Bringing decades of wisdom and experience, the panellists shared their expectations through to 2024 with a particular focus on inventory, demand, and economic influences.
Maureen Neilly, the Director of Commercial Leasing with QuadReal Property Group, is responsible for both office and industrial space and has completed over 600,000 square feet of new deals and renewals.
Peter Jenkins, the Director of Leasing at Great West Life, is responsible for all leasing and marketing initiatives of a 2.5 million square foot office portfolio including the pre-leasing of Vancouver Centre II.
Glenn Gardner, a Principal of Avison Young, has developed long-term corporate relationships and in doing so has successfully completed over five million square feet of leasing.
Backfilling Office Space
Companies like B2Gold, DLA Piper, and PI Financial are quickly moving into new office space, leaving their current spaces vacant. The panellists weighed in on whom they expect will backfill these spaces, and just how quickly. Jenkins felt there will be a good list of groups. He pointed out that spaces coming up soon will likely have quicker lease-up because of the existing demand on the market. Gardner, who pointed out the likelihood of growth from existing tenants, was quick to illustrate the beneficial state of the properties being left behind. “The spaces that they’re getting back aren’t terrible spaces, they’re pretty nicely improved. Someone could potentially go in there without having to spend a tremendous amount of money.” Neilly agreed with the strong sense of demand suggesting that prospective tenants might be those looking to rightsize, or tech firms looking to expand or relocate from either the US or elsewhere in Canada.
Remaining Competitive with Rising Rates
With increasing demand and limited space, new buildings have continually increased their rates to match the market, yet, in some cases, still haven’t found tenants. Rather than decreasing rates, the panellists shared creative strategies for attracting tenants. Jenkins spoke to the need for “future-proofing” assets which he feels “grabs people’s attention”. The panellists listed off desired amenities including nap pods, dog pods, yoga studios, fitness centres and rooftop decks. Instead of impressing the employer, “...the employer is looking to impress their employees”, according to Gardner. QuadReal, Neilly suggested, is “upping our game…” as it relates to tenant amenities. She spoke of an onsite refrigeration space allowing employees to have their household groceries delivered to work, lessening the need for post-work grocery shopping trips.
Forecasting Lease Rates
Looking towards 2023 and 2024 the panellists provided an ‘it depends’ answer when asked to forecast lease rates. Considering larger tenants, Gardner felt the introduction of one more Amazon and a few more Shopify-type-tenants could leave rates the same or cause them to climb. Sadly though, he illustrated the lack of sustainability for smaller firms. “An increase for a small firm,” Gardner said, “could be the difference between hiring two or three people.” Suggesting industry shock with the historical 40-dollar rent at Telus Gardens, now, according to Jenkins, “... you’re hearing rumours of rents with a seven in the front”. Though rent is heading in the direction of big cities like San Francisco and New York, Gardner isn’t so sure our market has the necessary depth (or diversity in our inventory) to reach those numbers.