January 26, 2010 - Following a steep downturn in the first half of 2009, overall economic conditions started to improve towards the end of 2009 in metro Vancouver.

These are some of the key trends, according to Avison Young. Fewer vacant subleases were delivered to the market, deal velocity picked up considerably in the downtown core, some office projects that had been stalled recommenced, and corporate tenants were again examining properties.

"The wait-and-see approach prevalent throughout 2009 may continue until after the 2010 Olympics when many leases roll over," says Avison Young Principal, Bill Elliott. "But overall, the market continues to rank among the tightest in North America with new speculative construction in check and no major downtown office tower expected to come on stream before 2014."

According to Avison Young, the Metro Vancouver office leasing market witnessed a marked slowdown in leasing activity and a rise in sublease space in 2009 as companies delayed expansion plans and downsized to reduce occupancy costs in light of the global economic downturn. As a result, vacancy rates climbed, rental rates softened, and landlords, particularly in the suburbs, offered larger inducement packages to attract and retain tenants.

However, while vacancy rates continued to creep up in the latter half of 2009, they did so at a slower pace than in the first half. Metro Vancouver's overall vacancy stepped up to 7.8 per cent at year-end 2009 from 7.4 per cent at mid-year 2009. Downtown's vacancy rate ticked up to 5.5 per cent from 5.0 per cent at mid-year 2009.

On the construction front, while Metro Vancouver developers delivered 600,000 square feet of new supply in 2008 (mostly in the suburbs), construction slowed in 2009 with just over 400,000 square feet added to the region's inventory. New construction completions are expected to meet 2008's level again in 2010.

Metro Vancouver's office vacancy rate is forecast to remain stable in 2010. "The downtown market should remain relatively strong while landlords in suburban submarkets, particularly Burnaby and Richmond, will face oversupply challenges and increased competition for tenants," adds Elliott.

Overall, the Metro Vancouver market is still quite healthy compared to other Canadian and international markets, according to Avison Young. "After a slight fourth-quarter 2009 uptick, the BC economy is expected to lurch at times during 2010 until employment shows consistent month-to-month improvement. The 2010 Olympics should help spur a recovery in the short term that will lead to long-term benefits," says Elliott.