Office space in Vancouver on the rebound

Jun. 13—The coronavirus pandemic triggered an immediate and seismic shift in the professional office landscape, sending entire offices home for 15 months of remote work and forcing companies to grapple with unexplored questions about how much of their work actually requires a professional office setting.

"I think every company is taking a step back," said Kevin Rockett, director of facilities at ZoomInfo, which is headquartered in Vancouver. "They're looking at the bigger picture."

Commercial real estate brokers and builders considered Vancouver to be in a good position before the pandemic arrived, with strong population growth, attractive amenities and a favorable state tax structure — all serving to set the city apart within the region and set the stage for continued growth in the office real estate market.

That trajectory took a hit during the pandemic, but with vaccination rates on the rise and the state tentatively eyeing a full reopening by the end of the month, attention is shifting to the potential long-term impacts of the business community's firsthand experience with the possibilities and benefits of remote work.

There's a consensus that things aren't going to go back to the way they were, but brokers and builders in Vancouver generally seem to agree that the local office market is still a strong bet for office growth.

Higher vacancy

Vancouver's current office market numbers reflect the impact of 15 months of remote work, according to Eric Fuller, CEO of Vancouver-based commercial real estate firm Fuller Group.

Clark County's vacancy rate for Class A office space stood at 16.6 percent at the end of May, he said, citing data from the national commercial broker database CoStar. That's up from 12.4 percent a year ago. It's higher than brokers would generally like to see, he said, although not "dangerously significant."

"Anything over 10 (percent) to 12 percent is considered excess vacancy on the market," he said.

It puts Vancouver in a better position than the overall Portland metro market, with reported vacancy rates at 25.1 percent compared with 17.64 percent a year ago, he said — high enough to cause hesitancy among developers pursuing new construction and the financial institutions that would bankroll the projects.

Vancouver lucked out in part because it didn't have many major office projects underway when the pandemic began, he said, so there was less risk of builders finding themselves stuck with fresh office space with no parties interested in an immediate lease.

In fact, office growth in Vancouver has been relatively modest since the last recession, according to Michi Slick, director of development at Portland-based real estate firm Killian Pacific — despite a few prominent additions like the Hudson building, the Murdock at the Waterfront Vancouver and Hurley Tower.

Portland had a relative oversupply heading into the pandemic, she said, leading to a glut once the quarantine set in. Office market activity in Vancouver remained more stable, she said, driven in part by companies in Portland and outside of the Pacific Northwest eyeing Vancouver as an ideal landing spot for relocation or expansion.

"Southwest Washington is definitely outperforming Portland from an office perspective right now," she said.

Activity has also started to pick up this year following a slump during the first half of the pandemic, she said, with a fresh round of calls coming in from potential tenants interested in Killian Pacific's Vancouver office portfolio.

Ryan Hurley of Vancouver-based Hurley Development said he's also seeing signs that the local market is returning to life, including calls from businesses in Portland eyeing relocation to Vancouver, but he said he expects it to take until later to see whether those calls pan out.

"The apprehension is there over how long it takes to get back to normalized numbers," he said. "Because we're still in the pandemic, technically."

New normal

Local staff will return to ZoomInfo's Vancouver headquarters next month, but they won't be coming back to the same workplace structure that they left behind at the start of the pandemic.

The company is adopting a hybrid work program in which staff will be able to alternate between office and remote work on different days of the week, and rearranging part of its office into shared workstations.

ZoomInfo's other office locations will follow the same approach, Rockett said, based on local regulations. But the shake-ups haven't resulted in a smaller overall office footprint, he said — the company is keeping its current offices and will continue to seek new space when needed as it grows.

If most corporate offices take a similar approach, the real estate market will likely emerge unscathed. That's the outcome Fuller said he hopes to see.

"Half the world believes there's a pent-up demand over the next 12 to 18 months," he said, "and there will be positive absorption in the Vancouver market. I'm one of those people."

That belief is based on the assumption that job growth will accelerate as companies seek to build back what they lost to the effects of COVID-19, he said, refilling spaces that were vacated and creating demand for the next round of office development. In that scenario, Vancouver's pre-pandemic advantages would persist.

The more pessimistic take is that office demand will drop in the short term — although in that scenario the real estate industry is more concerned about a slowdown due to an economic downturn rather than a permanent change in how workforces use offices post-pandemic, he said.

There isn't a consensus yet about whether the remote work era will spark a permanent change big enough to impact the office market, in part because an individual company's success with hybrid or remote models likely depends heavily on its corporate culture and the type of work it does.

Collaborative spaces

Several Vancouver builders pointed to creative industry companies as an example of the kind of work that can't be done remotely without losing an essential part of the process.

"My hunch is there's always going to be a strong environment for office in any metropolitan area because of the need for person-to-person collaboration," said Hurley.

"We've always been very skeptical of the work-from-home trend," added Patrick Gilligan, executive vice president at Portland-based Lincoln Property Group, which plans to build a mixed-use residential and office project on the two northern blocks of the Port of Vancouver's Terminal 1 redevelopment site.

The company is already seeing tenants bringing staff back to the office across its portfolio, he said, and Lincoln doesn't expect the rise of remote work to lead to widespread office changes apart from more flexible work schedules.

Lincoln is working toward a Terminal 1 groundbreaking at the end of this year, he said, and the pandemic hasn't shaken the company's expectation that there will be strong demand for waterfront office space, he said.

The rise of remote work could even lead to a boost in office demand in secondary markets like Vancouver or Bend, Ore., he said, because it could allow companies headquartered in big cities to adopt a hub-and-spoke model with individual teams or subsets in smaller cities. That trend toward small cities was already emerging pre-pandemic, he said.

"This was really kind of the octane injection that they needed to really turn that corner and become major environments with their own sort of ecosystem," he said.