The Impact Of 2024 Q4 Office Vacancy Rate Impacts Local Markets... Solutions!

As a local North Shore Realtor, I can’t help but feel concerned about the shifting dynamics in Greater Vancouver’s office market. According to Colliers Macaulay Nicolls Inc., the vacancy rate climbed to 9.8% in the fourth quarter of last year—a stark increase from previous years. This change doesn’t just affect office buildings in Vancouver; it sends ripple effects throughout our communities, impacting the fabric of our neighborhoods and property values.The report highlighted the negative absorption of 67,000 square feet in Q4, caused by "uncertain market conditions and companies reconsidering their office utilization strategy." While this might seem like a corporate issue, it also points to a troubling trend of stalled or repurposed office developments. As companies downsize or rethink their spaces, what will happen to the influx of workers that used to drive local economies, including ours on the North Shore?It’s not just downtown Vancouver feeling the pinch. Areas like Burnaby and the Broadway corridor are also grappling with high vacancy rates. Landlords are struggling to fill spaces, particularly in aging Class B and C buildings. These vacancies often result in a lack of investment in infrastructure, which could easily spill over into residential areas. Unfilled commercial spaces near transit hubs or community amenities could lower the vibrancy—and even safety—of our neighborhoods.The report also revealed that “shadow space” (unlisted but vacant offices) inflates downtown’s real vacancy rate to nearly 12.9%. This hidden vacancy further illustrates the growing divide between high-end, Class AAA office buildings, which still attract tenants, and less desirable older properties. As a homeowner, this raises concerns about local job opportunities. If companies are consolidating in premium spaces and moving away from suburban or less central hubs, what does that mean for those living outside the downtown core?Technology companies led the leasing activity in Q4, followed by sectors like education, legal services, and healthcare. While these industries are promising for job creation, the average size of leases suggests companies are scaling down. Most deals were for smaller spaces under 10,000 square feet, and larger spaces now sit on the market for over a year. This kind of contraction in the business world doesn’t bode well for long-term economic growth in our region.Of course, rental prices also play a significant role. The weighted average asking rent for Greater Vancouver dropped by 4.3% last year to $33.17 per square foot. However, for the newest and most luxurious downtown buildings, rents still exceed $50 per square foot. As a resident, it’s hard not to wonder whether this sharp divide between premium and lower-class spaces reflects broader inequities in our housing and commercial real estate markets.Finally, Burnaby stood out as the most active market for new office construction, accounting for 21% of Q4 activity. Projects like The Hive in False Creek Flats and City Centre 4 in Surrey hint at a push to create modern office spaces. But how sustainable is this when we’re seeing vacancies climb and demand fluctuate?As a homeowner, these trends leave me deeply concerned. The health of our office market doesn’t exist in isolation; it intertwines with the overall vitality of our communities. Stalled developments, declining office activity in suburban areas, and economic uncertainty all threaten the stability of neighborhoods like the North Shore.We must ask ourselves: What can we do as a community to ensure these shifts don’t erode the quality of life we cherish? Are there policies that could better support adaptive reuse of vacant spaces or encourage businesses to stay rooted in diverse parts of Greater Vancouver? While the challenges may seem distant at first glance, the long-term implications are very close to home.I was contemplating about how other cities have dealt with this challenge and found cities around the world have implemented various strategies to offset high office vacancy rates, including rezoning, adaptive reuse, and incentivizing new types of tenants. Here’s a breakdown of notable actions other cities have taken:

1. Rezoning and Conversion to Residential (Strata or Rental Housing)

Toronto, Canada: The city has allowed office buildings with high vacancies to be rezoned for residential use, especially near transit hubs. Developers are encouraged to convert underused commercial spaces into condos or rental units, addressing both office vacancies and housing shortages.
New York City, USA: Programs like the "421-g" tax incentive supported the conversion of vacant office buildings in Lower Manhattan into residential apartments. This policy transformed parts of the Financial District into vibrant, mixed-use neighborhoods.
Paris, France: The French government introduced subsidies and eased regulations to convert vacant office buildings into housing, prioritizing affordable housing in areas with high residential demand.

2. Flexible Zoning and Mixed-Use Development

Melbourne, Australia: Melbourne adopted a flexible zoning approach, encouraging developers to create mixed-use developments. Vacant office spaces are converted into retail stores, gyms, co-working spaces, and residential units to revitalize neighborhoods.
London, UK: London's "Class E" zoning reform allows buildings to switch between office, retail, and other commercial uses without requiring planning permission. This flexibility makes it easier to adapt properties to changing market demands.

3. Incentives for Tenants and Small Businesses

San Francisco, USA: The city introduced tax breaks for tech startups and other small businesses willing to lease long-vacant office spaces. By fostering innovation hubs, San Francisco turned vacant buildings into coworking spaces and tech incubators.
Berlin, Germany: Berlin subsidized artists, creatives, and small businesses to rent office spaces at below-market rates. This not only reduced vacancies but also attracted a more diverse tenant mix, improving local economic activity.

4. Adaptive Reuse for Community Needs

Tokyo, Japan: Older office buildings were converted into community centers, elder care facilities, and educational institutions. This approach helped meet local needs while reducing vacancy rates.
Singapore: The city incentivized converting older, less competitive office buildings into green-certified spaces or community-use facilities. Grants and tax breaks are provided to encourage landlords to modernize or repurpose their properties.

5. Urban Policy and Transit-Oriented Development

Seoul, South Korea: To combat high office vacancies, Seoul encouraged "office clustering" by supporting startups and small businesses in specific zones near major transit lines. This created synergies between tenants and boosted occupancy rates.
Chicago, USA: The city’s efforts focused on improving transit access and creating “live-work-play” districts near high-vacancy areas. By enhancing infrastructure and public spaces, Chicago attracted tenants looking for better amenities.

6. Temporary or Short-Term Use

Hong Kong: In areas with high vacancies, the government worked with landlords to allow temporary use of office spaces for pop-up shops, events, and exhibitions, injecting life into underutilized areas.
Amsterdam, Netherlands: The city launched a program encouraging landlords to lease vacant spaces for temporary uses, such as coworking, art studios, or short-term housing for students or workers.

Key Takeaways for Greater Vancouver

Rezoning for Residential: Allowing older, less-desirable office buildings to be rezoned into strata or rental housing could help address both vacancy and housing crises.
Mixed-Use Incentives: Encourage landlords to integrate retail, residential, or community spaces in vacant office properties, especially in suburban markets like Burnaby or Surrey.
Subsidies for Startups or Artists: Financial incentives for small businesses, creatives, or tech startups to lease spaces could diversify tenant mixes.
Focus on Transit-Oriented Development: Promote policies that link office spaces to transit and create vibrant, mixed-use neighborhoods to attract tenants.
Encourage Adaptive Reuse: Support converting empty offices into schools, healthcare facilities, or community centers to meet local needs.

Here’s a list of actionable ideas Vancouver could implement, inspired by global strategies, to address rising office vacancy rates while meeting local needs:

1. Rezoning for Residential or Mixed-Use Development

Vancouver could encourage adaptive reuse of underperforming office buildings by rezoning them for residential or mixed-use purposes:

Residential Conversions: Allow Class B and C office buildings in areas with high vacancies to be converted into strata or rental housing. Focus on neighborhoods like the Broadway Corridor, which are transit-accessible and already undergoing densification.
Incentivize Affordable Housing: Offer tax breaks or density bonuses to developers converting office spaces into affordable housing units. This would help address Vancouver’s housing crisis while reducing vacancies.

2. Encourage Transit-Oriented Mixed-Use Developments

Many areas near SkyTrain stations, particularly in Burnaby, Surrey, and along the Broadway Corridor, could be revitalized with mixed-use developments:

Live-Work-Play Communities: Partner with developers to create vibrant hubs that combine residential units, office spaces, and community amenities like gyms, daycares, and grocery stores.
Transit Hub Activation: Prioritize redeveloping office buildings near key transit hubs into mixed-use spaces to encourage occupancy and improve foot traffic.

3. Financial Incentives for Small Businesses and Startups

Create opportunities for small businesses, entrepreneurs, and community groups to occupy vacant spaces:

Startup and Arts Subsidies: Offer rent subsidies or grants for startups, artists, and nonprofits to lease underutilized office spaces. This could create innovation hubs while bringing activity to vacant buildings.
Pop-Up Leasing Programs: Work with landlords to offer short-term leases for pop-up shops, galleries, or coworking spaces. These temporary uses inject life into otherwise dormant areas and may lead to long-term tenancy.

4. Flexible Zoning and Streamlined Approvals

Encourage flexibility in how office buildings are used:

Flexible Zoning: Allow office buildings to shift between uses, such as retail, healthcare, or education, without requiring lengthy rezoning applications. This would help landlords pivot to meet current market demands.
Fast-Track Approvals: Expedite permits for conversions to residential, mixed-use, or community-focused spaces, especially in areas with persistently high office vacancies.

5. Adaptive Reuse for Community Needs

Transform vacant office spaces into facilities that address local social or community needs:

Schools or Training Centers: Convert offices into schools, vocational training centers, or language schools, particularly in neighborhoods with a growing population.
Healthcare Facilities: Repurpose buildings into healthcare clinics, elder care centers, or wellness hubs to serve local residents.
Community Spaces: Turn underutilized office buildings into spaces for community gatherings, recreation centers, or cultural hubs.

6. Promote Green Retrofitting of Older Buildings

Encourage the revitalization of aging office buildings to make them more attractive and environmentally friendly:

Green Building Grants: Offer financial incentives for landlords to retrofit Class B and C office buildings with energy-efficient systems, modern amenities, and better aesthetics.
Carbon Credit Incentives: Allow landlords to earn carbon credits for reducing emissions through green retrofits, making properties more appealing to tenants looking for sustainable options.

7. Market-Specific Tenant Attraction Strategies

Vancouver could focus on attracting specific industries or tenant types to fill office spaces:

Tech and Creative Industries: Build on Vancouver’s growing tech sector by offering incentives for startups and remote-work companies to set up coworking or flexible office spaces.
Education and Training: Attract private colleges, vocational schools, or tutoring centers to lease spaces in areas like the Broadway Corridor or Burnaby.
Health and Wellness: With the rise of health-focused industries, attract businesses like physiotherapy clinics, fitness studios, or wellness companies.

8. Public-Private Partnerships (PPPs)

Collaborate with private developers and landlords to revitalize office spaces while serving public needs:

Subsidized Leases for Essential Services: Work with landlords to provide discounted leases for essential services, such as childcare facilities, libraries, or nonprofit offices, to occupy vacant buildings.
Developer Partnerships: Partner with developers to convert vacant office spaces into affordable housing or mixed-use spaces with shared public amenities.

9. Downtown Activation and Branding

Revitalize the downtown core and suburban business districts with targeted campaigns and investments:

Event-Based Activation: Host regular events in office-heavy areas, such as outdoor markets, food festivals, or cultural events, to increase foot traffic and attract businesses.
Brand Districts: Market different areas as unique hubs (e.g., tech district, creative corridor) to appeal to specific industries.

10. Monitoring and Adaptive Policies

Establish a task force to monitor vacancy rates and recommend ongoing adjustments:

Data-Driven Decisions: Create a public-facing dashboard to track office market trends, making it easier for stakeholders to identify problem areas.
Pilot Programs: Test small-scale adaptive reuse projects, such as pop-up spaces or temporary housing, and scale successful initiatives across the city.

These strategies could help Vancouver adapt to changing market conditions while addressing housing shortages, community needs, and economic diversification. Thinking specifically how to roll out these concepts in Downtown, Yaletown and North Vancouver

Downtown Vancouver

Downtown Vancouver, with its high concentration of Class A and AAA office spaces, faces challenges such as "shadow spaces" and rising vacancy rates. Here's how to address them:

1. Rezoning and Conversions

Residential Conversions for Older Buildings: Allow older Class B and C office buildings (especially those further from premium areas like Coal Harbour) to be rezoned for residential or mixed-use purposes. Focus on rental housing to address the housing crisis.
Luxury Mixed-Use Projects: Encourage developers to integrate high-end residential units with office and retail spaces, creating "live-work-play" hubs attractive to urban professionals.

2. Incentives for Modernization

Green Retrofitting: Provide tax breaks or grants for landlords to modernize aging office spaces into sustainable, energy-efficient buildings that meet tenant expectations for amenities and eco-conscious practices.
Tech Sector Attraction: Partner with Vancouver's thriving tech industry to lease spaces for coworking, innovation hubs, and startup incubators. Offer subsidies for companies relocating or expanding into downtown.

3. Short-Term Activation

Pop-Up Leases: Work with landlords to offer short-term leases for pop-up shops, art galleries, and creative spaces in vacant offices, especially in underutilized areas like the eastern edge of Downtown.
Event Programming: Organize public events such as art festivals, food trucks, and outdoor markets in areas near high-vacancy buildings to draw foot traffic and make the downtown core more vibrant.

4. Adaptive Reuse for Public Services

Educational Facilities: Convert large vacant office spaces into campuses for universities or training centers, creating more opportunities for urban education while reducing vacancies.
Community Use: Repurpose smaller office spaces for public services like libraries, recreation centers, or shared spaces for nonprofits and social services.

Yaletown

Yaletown, known for its trendy, upscale vibe, faces challenges with older buildings and the need for more flexibility to remain competitive:

1. Mixed-Use Development

Boutique Residential Conversions: Rezone and convert older office buildings in Yaletown into boutique residential developments that maintain the area’s upscale character. Focus on small-unit housing for young professionals.
Retail-Residential Blends: Encourage developers to integrate residential units with ground-floor retail, such as high-end shops, cafes, and restaurants, maintaining Yaletown’s vibrant streetscape.

2. Flexible and Creative Office Spaces

Coworking Spaces: Incentivize landlords to lease spaces to coworking companies or set up flexible offices for startups, freelancers, and creatives. Yaletown's trendy appeal makes it ideal for attracting this demographic.
Subsidized Artist Studios: Convert older, less competitive offices into subsidized artist studios or creative spaces, reinforcing Yaletown’s reputation as a cultural hub.

3. Public Engagement and Events

Art and Culture Activation: Use vacant spaces for pop-up art galleries, interactive exhibits, and live performances to draw foot traffic and showcase Yaletown’s creative vibe.
Seasonal Markets: Introduce seasonal outdoor markets, like holiday fairs or summer night markets, to keep the area bustling and attract diverse visitors.

4. Improved Amenities for Tenants

Tenant Incentives: Work with landlords to offer flexible lease terms, better amenities (e.g., fitness centers, bike storage), and shared workspaces to attract tenants looking for modern, collaborative environments.

North Vancouver

North Vancouver’s mix of residential neighborhoods and office spaces requires strategies to support suburban economic activity while maintaining its community feel:

1. Rezoning for Housing

Family-Oriented Residential Conversions: Rezone small or outdated office spaces in areas like Lonsdale Avenue for mid-rise residential housing with family-friendly amenities, such as childcare centers and play spaces.
Mixed-Use Hubs: Convert office buildings into mixed-use spaces that include residential units, healthcare facilities, and retail, particularly near transit hubs like the SeaBus terminal and Lonsdale Quay.

2. Transit-Oriented Development

Live-Work Neighborhoods: Encourage the development of live-work buildings near major transit routes. Include small offices or retail spaces on the lower levels with residential units above.
Small Business Attraction: Offer tax incentives or grants to attract small businesses, startups, and local entrepreneurs to vacant office spaces near transit hubs.

3. Adaptive Reuse for Community Needs

Healthcare and Wellness Facilities: Repurpose vacant office spaces into health clinics, physiotherapy centers, or wellness studios to serve the growing local population.
Recreation and Education: Use office spaces for after-school programs, tutoring centers, or recreation hubs for children and families.

4. Green Building Initiatives

Eco-Friendly Retrofitting: Align with North Vancouver’s sustainable identity by offering incentives for landlords to retrofit older offices into green-certified buildings.
Outdoor Workspaces: Create outdoor coworking spaces or rooftop gardens on converted office buildings, integrating nature with work environments.

5. Community Engagement

Local Business Incubators: Partner with local organizations to create small business incubators in vacant spaces, fostering entrepreneurship in sectors like tourism, arts, and crafts.
Community Events: Use vacant spaces for pop-up community events, such as workshops, farmers’ markets, or art shows, reinforcing North Vancouver’s strong community identity.