Greater Vancouver Area

June 3, 2020 | Canada

As this unprecedented situation continues to rapidly evolve, Avison Young’s briefing notes are intended to provide an up-to-date assessment of the impact on the commercial real estate market.

Period covered: May 16th to 29th, 2020

General trends, news and market observations

  • B.C. extended provincial state of emergency for an additional two weeks (the fifth time) to mid-June with B.C. Premier John Horgan indicating once again that this will continue for the ”foreseeable future”
  • Reopening U.S. border could take "significant" period of time: B.C. health minister
  • Canada and U.S. extend border closure for another 30 days to June 21st
  • B.C. health officials won't ease provincial restrictions by specific regions
  • B.C. entered phase 2 of its reopening plan on May 19th
  • WorkSafeBC conducting random inspections as businesses reopen
  • TransLink’s Expo and Millennium SkyTrain rapid transit lines to return to 100% normal service levels the week of June 1st
  • TransLink to lift seating capacity restrictions on buses starting the week of June 1st
  • With demand for transit on the rise, TransLink warning that riders shouldn’t expect physical distancing
  • Surrey-Langley SkyTrain extension facing delays due to TransLink's fiscal crisis
  • BC Ferries set to resume its major route from Horseshoe Bay to Nanaimo
  • City of Vancouver proposes 50 km of "slow streets" for pedestrians and cyclists
  • City of Vancouver creates first 12 km of "slow streets" for physical distancing
  • City of Vancouver to launch expedited application process for patio permits; operators of Vancouver restaurants and pubs able to apply June 1st to add temporary patios
  • City of Vancouver rescinds order to shut down restaurant table service
  • Vancouver ranks in middle of list of top-100 cities in the world for managing post COVID-19 economy: report
  • 13,400 businesses have closed in Vancouver because of the shutdown: survey
  • Some Metro Vancouver businesses could be better off staying closed than risk re-opening during the second phase of the B.C.’s government's plan to safely and gradually re-open the economy, according to B.C. Chamber of Commerce
  • Only a quarter of B.C. businesses feel confident restarting and operating profitably as the province eases into its pandemic restart plan: B.C. Business Council
  • Port Coquitlam offering free city labour to restaurants to help construct their patios
  • Rules loosened for Burnaby outlets to expand licensed patios
  • Field hospital likely to remain at Vancouver Convention Centre for the long term
  • Vancouver’s cruise ship season cancelled after federal government extends ban on large cruise ships until October 31st

Office market observations

  • Uptick in office leasing activity with tenants increasingly reaching out and more calls on listings as market appears to be trending back to normal, but negotiations still taking longer due to landlords and tenants taking more time to make decisions
  • Tenants continue thinking downtown office rents have declined, but the deals that are getting done, which have been mostly renewals, do not have a COVID-19 discount
  • Landlords, tenants and appraisers all anticipating an increase in activity; some clients are asking appraisal firms to delay appraisals due to ongoing uncertainty regarding valuations
  • More restrictive financing terms continue impacting/hindering potential office sales
  • Public sector clients remained busy through pandemic and have focused on lease expiries, but like private sector counterparts are taking longer to make decisions
  • With vacancy likely trending higher (mostly sublease space), there should be more options for clients, which is good for tenants
  • Office lease negotiations now typically involve users pushing for financial benefits upfront such as delayed commencement dates or other front-end loaded incentives rather than over the length of term
  • Ongoing discussion around whether tenants will need more or less space post-pandemic with one opinion being that the amount of space needed will not change, but how that space is used will change substantially
  • Downtown office sublease opportunities continue to increase in frequency with most spaces still considered small, but a handful of larger sublease availabilities emerging

Industrial market observations

  • PC Urban and KingSett Capital partnered to purchase Viking Way Business Centre, a multi-building light industrial property in Richmond, B.C. Pricing was not disclosed for the 9.7-acre site, which includes 160,000 sf of leasable space and is 100% occupied
  • Strong uptick in leasing and sales activity with increase in touring
  • Small spaces continue to come back to the market as leases/subleases/sales
  • Some retailers seeking additional warehouse space for e-commerce uses due to collapse of storefront retail sales
  • Leases and sales continue getting done for smaller spaces as new listings for small spaces coming to market continue generating activity
  • Some larger spaces are starting to emerge, including the largest known to date, a 95,000-sf sublease; almost 200,000 sf of industrial sublease space came on the market in Metro Vancouver the week of May 25th
  • One large local manufacturer indefinitely postponed plan to build a new facility
  • Development of a small strata industrial development was stopped but most new development continues
  • New industrial strata projects continue to be marketed at prices that would set new records if achieved
  • Renewals are getting done with no COVID-19 discount on lease rates
  • Industrial asset sales are generating multiple offers in many instances
  • Likely to see consolidation of some user types as larger companies acquire smaller ones

Retail market observations

  • McArthurGlen Designer Outlet Vancouver Airport reopens to public
  • Nordstrom at Pacific Centre reopened May 22nd
  • More than 100 shops at BC’s largest mall, Metropolis at Metrotown, open as of May 20th
  • B.C. restaurants can resume dine-in service with new protocols starting May 19th
  • Downtown Vancouver's newest Safeway grocery store opened week of May 25th
  • Pacific Centre, Hudson's Bay, Holt Renfrew, and Sport Chek in downtown Vancouver reopened
  • Members and former employees of Steve Nash Fitness World continue to wonder whether they will have a gym or a job to return to as SNFW Fitness B.C. Ltd. – which owns more than 27 fitness locations in B.C. – is partway through a sales process to secure a buyer and avoid bankruptcy
  • Whistler Blackcomb operator discusses reopening plan in email to employees
  • In terms of the province’s reopening, the week of May 25th was key as B.C. saw a reasonable amount of restaurant re-openings with a heavy emphasis on patios if possible and also reduced occupancy limits
  • Crucial time with everyone waiting to see what sales look like, especially in the restaurant world, in order to get a sense of what ‘new normal’ proforma sale estimates could be
  • Landlords are looking at initial results as they not only will impact the ability for the landlord and tenant to apply for the CECRA, but also landlords are looking further down the road to make a determination if their tenants will succeed
  • Anecdotally, non-food retailers are happy with the demand they are seeing relative to their expectations, but it is very early days
  • More landlords are showing positive signs that they will apply for the CECRA, which the government started accepting applications for on May 25th, and landlords are increasingly telling tenants that they are willing to work with them and apply
  • While landlords are saying to tenants they will support them and apply for the CECRA, they often want tenants to prove they can pay their 25% contribution because landlords don’t want to be in a situation where they get approval and the tenant still can’t pay their 25% contribution
  • Once government supports end or expire that is when the real pinch is going to come in terms of what sales look like moving forward which may require the renegotiation of lease agreements
  • A renegotiation of retail leases that likely include some form of a reduction in rent for the next 12 to 24 months will likely need to occur, but landlords are unwilling to comment or contemplate such discussions at this time
  • Tenants and landlords will need to “show their cards” to each other more often to succeed and consider each other more as partners. Those doing that successfully right now are ahead of the game
  • The public started coming out before the formal phase 2 reopening came into effect May 19th; there are indicators that there is pent-up demand, but when there are legal limitations in place, how comfortable are people going to feel? There will be early adopters and there will be a portion of the population that will take a lot longer
  • Discussions around what the next six to 12 months look like will likely need to start, particularly with dine-in restaurants
  • Landlords will be asked to make concessions in rental agreements for the length of term that occupancy and social distancing limitations remain in place, and right now that length is unknown, but could be at least six to 12 months. That’s the next great unknown
  • A lot of the high-profile retail failures reported recently were companies that were on the road to failure well before COVID-19, which just expedited the process
  • Healthy retailers will be able to reopen, but their ability to stay open will depend on when people get back to traditional shopping habits
  • Landlords understand that it is not back to business as usual when businesses reopen, but larger landlords have not made any forward commitments at this time, but acknowledge that is the next phase
  • A setback of any sort could be absolutely devastating to retail in Canada. If businesses are required to close again, the ability of businesses to reopen a second time will be greatly diminished

Property management observations

  • CECRA applications started as of May 25th; the process only permits one application per building, so it is not done on a client-by-client basis; there are also clauses that prevent commercial evictions after making the application as well as numerous requirements for the landlord and lender
  • Lease renewal negotiations for tenants have restarted in earnest
  • Most CECRA applications will be for the benefit of smaller mom-and-pop type tenants because it is the best possible scenario for both the landlord and tenant
  • Need for increased security and cleaning for semi-occupied buildings now that they have reopened
  • CERB creating issues with finding new employees for some janitorial/security/construction labour roles
  • Lease renegotiations will likely commence in July that will start to recognize what the new normal looks like with landlords generally becoming more conciliatory towards retail tenants
  • May rent collection was stronger than anticipated with vast majority of industrial and office tenants able to pay May’s rent and retail tenants being the least able to pay, but better than expected

Multi-Residential observations

  • While many owners of multi-residential assets appear unconcerned by the market as rental payment rates remain high due to government supports; it is unclear how that will hold up once government supports end with some new high-end rental properties charging premium rents likely to suffer from increases in vacancy

Investment market observations

  • Finance capital flows loosened up since the end of April, but lenders asking a lot more questions with much more conservative underwriting
  • Bond yields are the same at the end of May as they were at the end of April
  • Deals continue to get extended not dropped
  • Acquisition of Crestwood Corporate Centre (pricing still unknown) by Peterson could represent a shrewd move to capitalize on shift in office-use patterns in post-pandemic environment
  • Vendors are starting to consider selling again, but remain unsure on pricing assets
  • Institutional investment activity remains largely at a standstill, but there are hopes that will start to shift in the next 30 to 60 days
  • New Vancouver office building listing in excess of $50 million likely to emerge in coming weeks
  • New listing for forward-sale of new large distribution warehouse valued in excess of $100 million likely to come forward in the short term
  • Requests for valuations to inform exit strategies are on the rise

For more information please contact:

Andrew Petrozzi +1 604.646.8392

For more on the virus’ potential #CRE impacts, read the latest briefings on our Avison Young Resource Centre:

The spread of COVID-19 and the containment policies being introduced are changing rapidly. While information in the briefing notes is current as of the date written, the views expressed herein are subject to change and may not reflect the latest opinion of Avison Young. Like all of you, Avison Young relies on government and related sources for information on the COVID-19 outbreak. We have provided links to some of these sources, which provide regularly updated information on the COVID-19 outbreak. The content provided herein is not intended as investment, tax, financial or legal advice and should not be relied on as such.