Commercial Real Estate in Vancouver

In the wake of a global transformation in how and where people work, commercial landlords in Vancouver are facing a challenging yet dynamic landscape. The commercial real estate market all over Canada has witnessed a significant shift in tenant preferences and work culture, driven by the rise of remote and flexible work arrangements. As a result, savvy landlords are actively reevaluating their strategies to adapt to these changing tides. We sat down with Elizabeth Westgate, the Director of Strategic Initiatives at Cadillac Fairview, to discuss the commercial real estate industry. We dived into the current state of the real estate market in Vancouver and how it compares to other markets in Canada, how landlords are implementing innovative initiatives to attract and retain tenants, and how landlords are helping companies create enticing environments that inspire employees to return to the office.

The role of strategic initiatives at Cadillac Fairview

Elizabeth Westgate is the Director of Strategic Initiatives at Cadillac Fairview (CF). A unique team within the commercial real estate industry, the Strategic Initiatives team functions like an internal consulting group dedicated to assisting CF’s senior leadership and executive teams in tackling challenging issues and opportunities. Her team works closely with leaders across the company, from both a corporate and portfolio level, and collaborates with CF’s office and retail portfolio leaders in setting strategic direction. More specifically, Westgate and her team help inform key decision-makers by digging through data, conducting robust research and analysis, and developing recommendations for their consideration.

“My team’s mandate is to ensure that CF’s leadership teams feel empowered in their decision-making by providing them with insights founded in data. We focus our efforts on connecting the dots and generating takeaways that are not so readily available.”

-Elizabeth Westgate

For a more comprehensive understanding of the initiatives spearheaded by Elizabeth Westgate and her team at CF, mark your calendar for the upcoming TenantTalks Summit. During this event, Elizabeth and other industry experts will provide detailed insights into how Vancouver’s landlords are maximizing the in-office employee experience.

The commercial real estate market in Vancouver

According to Westgate, the Vancouver market is in a markedly different spot than pre-Covid, with vacancy rates around 12-13% in Vancouver’s downtown compared to a historically tight market at year-end in 2019 when downtown vacancy sat under 3%. Real estate is a cyclical business, and Vancouver – like most North American office markets – is experiencing a down market coming out of the pandemic.

In considering what has influenced Vancouver’s current state of the market, three key factors come to mind:

The work-from-home effect

Firstly, the widespread adoption of remote work, or working from home (WFH), has significantly impacted office spaces. While this challenge is seen as temporary, it necessitates close collaboration with corporate decision-makers to understand their perspective on the value of the physical office. Over the next few years, a reversal of this trend is anticipated as companies begin to disseminate a return-to-office mandate and adapt their workspaces to align with workforce requirements.

Concerns of an impending recession

Secondly, concerns about an impending recession have led CEOs and key decision-makers to adopt a more conservative approach to leasing efforts. This cautious stance reflects their anticipation of a substantial economic slowdown.

Vancouver’s increase in office space

Lastly, predicated on early 2020’s sub-3% vacancy, demand for new construction accelerated. Since then, Vancouver has witnessed a swell of inventory – over 4 million square feet have been delivered with a notable increase in AAA products – from the addition of attractive commercial spaces coinciding with somewhat lower demand. This significant delivery of new supply has contributed to the prevalent high vacancy rates observed in the city’s commercial real estate market.

In summary, the Vancouver commercial real estate market is currently influenced by the evolving dynamics of remote work, economic uncertainties, and the simultaneous expansion of inventory – impacting both the supply & demand side of the office market equation. Understanding these factors is crucial for navigating the market effectively and articulating impactful strategies to ensure retention and drive new leases.

Return to office across Canada

Looking specifically at Canada’s return-to-office (RTO) rates, the western region is notably leading the way compared to other Canadian markets. Conversely, cities like Toronto and Montreal are experiencing a slower return-to-office trend. Nevertheless, landlords like CF are seeing a consistent rise in office occupancy levels nationwide. This increase can be attributed to several factors, primarily driven by companies encouraging employees to return to the office as the effects of the pandemic continue to fade. Employers & employees alike increasingly recognize the advantages of working in a physical office setting – problem-solving & creativity stand out as particular benefits.

How commercial real estate landlords are tackling the RTO

CF strongly focuses on each office building’s “AAA” (amenities, aesthetics, and activations) offering and sustainability to help encourage employees back to the office.

Amenities

To compete with the inherent benefits of remote work, landlords are capitalizing on new and renovated buildings to create unique and differentiated experiences through enhanced amenity offerings. For example, Westgate is seeing more tenant-centric services with tech-enabled options such as apps to book amenities and elevated services like five-star concierges in building lobbies. Moreover, social spaces are gaining popularity, particularly open-air terraces, breakout rooms, and clubhouses. Overall, amenities are increasingly popular as differentiators and drivers of the RTO movement, and CF strongly emphasizes delivering meaningful amenities tailored to resonate with its buildings’ occupants. Curating amenities to its client base has been a conscious effort of CF for years, notwithstanding the pandemic, and has resulted in a robust offering across its Vancouver office portfolio that has a particular focus on health & wellness related amenities (think: fitness centres, outdoor spaces that foster community engagement, etc.) that have helped drive strong RTO in CF’s offices.

Aesthetics

Aesthetics are pivotal in office buildings, as they contribute significantly to the overall atmosphere and tenant satisfaction. Maintaining a dynamic and engaging environment through ongoing initiatives like art installations, lobby design upgrades, and restroom enhancements is crucial. These efforts not only enhance the visual appeal of the space but also foster excitement and a sense of pride among occupants. Things that may seem simple, like routine multi-tenant lobby upgrades, are essential to ensure that common areas remain contemporary and inviting, leaving a positive impression on visitors and tenants alike. In the competitive world of commercial real estate, aesthetics is a powerful tool for attracting and retaining tenants while creating a vibrant and inspiring workplace environment.

Activations

Through the pandemic, CF has taken a deliberate approach to ensure that its amenities are not merely offered but also activated and enjoyed by the community. A prime example of this commitment is the introduction of a lively beer garden complete with live music and food trucks, creating a vibrant social hub within their properties. CF’s ongoing efforts extend to enhancing indoor and outdoor experiences, offering services like bike valets, hosting tenant appreciation events, and providing live music, all of which contribute to creating a social and engaging atmosphere, elevating the overall tenant experience.

Sustainability

Sustainability has become crucial for office tenants, especially in the ongoing demand for centrally located Class A office spaces in transit-oriented central business districts (CBD). Employers are eager to entice their employees back to the office in this competitive landscape. However, the effects of remote work have hit some office spaces harder than others, with older and less well-appointed Class B and C spaces facing greater challenges. This has led to a significant focus on ESG (Environmental, Social, and Governance) principles.

Landlords are allocating resources to obtain certifications to meet increasing regulations and cater to tenant preferences for sustainable and inclusive workplaces. Post-pandemic, tenant well-being, comfort, cleanliness, and air quality have gained prominence, leading to the popularity of certifications like WELL Health and the Rick Hansen Foundation Accessibility certification, which emphasizes accessibility and inclusion. Vancouver stands out as a pioneer in these efforts, particularly concerning health and lifestyle-focused assets. Highlighting its commitment to sustainability, CF recently announced that its entire Vancouver Office Portfolio secured Zero Carbon Building (ZCB) Performance Standard Certifications, which recognizes buildings with zero-carbon operations. With certifications now awarded across all 11 buildings in Vancouver, this represents more than 3,135,000 square feet of best-in-class office space. In this evolving landscape, sustainability and ESG are not just buzzwords but essential considerations for both landlords and tenants.

Overall, it is evident that CF places a high emphasis on building a connection with its tenants beyond simply offering a physical brick-and-mortar space.

“Sure, people can wake up in the morning, come to work, and go home, but at CF, we hope to infuse a more meaningful connection with people’s place of work. We don’t want our tenants to go through the motions – we want them to enjoy being in a CF building, make good memories, and feel proud of where they work. It creates a sense of loyalty and strengthens our community.”

-Elizabeth Westgate

The commercial real estate landscape in Vancouver and beyond is transforming significantly in response to evolving work culture and tenant preferences. Elizabeth Westgate and the Operations team at Cadillac Fairview are at the forefront of adapting to these changes, emphasizing the importance of creating engaging environments. As we look to the future, expert insights such as the one from Elizabeth serve as a testament to the dynamic nature of the industry and the vital role landlords play in shaping the office spaces of tomorrow.