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The official picture of Vancouver’s office-tower scene is blindingly bright: almost zero vacancy, more companies clamouring for space, and near euphoria over the city’s transformation from a resources-only town to a rapidly growing tech centre that is filling up commercial buildings faster than they can be put up.

But beneath the positive buzz, which was on full display at a major real estate conference in the city recently, there are some concerns at how leasing – and potentially the city’s economy – is slowing down.

There are ominous clouds on the horizon, says some real estate analysts, ranging from the possible impact of global trade wars to the precariousness of WeWork, a company going through some high-profile struggles that was involved in the biggest downtown lease deal this year. There are worries the peak has been reached and the downhill is coming.

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The slowdown is hitting the country’s two major big office markets, Toronto and Vancouver.

But it could potentially have the biggest impact in Vancouver, where there has been explosive expansion in recent years. There are half a dozen new office buildings under construction – from Amazon’s remake of the old Post Office on Georgia Street and Westbank Corp.'s stacked-box-like tower across the street to the new Vancouver Centre II Tower on Seymour Street – and a potential wave of six more.

“Growth is decelerating down to zero. Downtown Toronto and Vancouver have been shifting to neutral,” said Stuart Barron, the national director of research for commercial brokerage Cushman & Wakefield in Toronto. (Montreal started its office boom after the other two and isn’t showing the same signs of braking yet.)

He noted that Vancouver went through an incredible boom during the past four years, with the downtown absorbing 730,000 square feet a year of office space, as companies expanded or new companies came to town – a 500-per-cent increase over previous long-run growth averages. The vacancy rate for downtown office space is 3 per cent, an almost unheard-of rate and the second-lowest among major office markets in North America. (Only Toronto’s is lower.) The vacancy rate for the whole region is 4.8 per cent, the lowest among area markets, including San Francisco and New York.

Downtown tenants absorbed about 180,000 square feet of space per quarter until the end of the first quarter in 2019. Since then, the absorption has dropped to 6,000 square feet per quarter in the six months, said Mr. Barron.

Maury Dubuqe, a senior managing partner at the Vancouver offices of Colliers International, said he is noticing a distinct gearing down, too.

“There’s been a pause the last three of four months and some uncertainty these days.”

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After presiding over a mostly optimistic panel on North America’s Hottest Office Market at the Vancouver Leasing Conference, JLL executive vice-president Mark Trepp acknowledged, as well, that the market has taken a “bit of a breather” in recent months.

“People don’t know: Is this the beginning of a new trend or a bit of a pause?" he said.

Everyone at the conference stressed that part of the reason for the slower leasing activity is because the city and the region are running out of space, especially the bigger chunks of space that many incoming or expanding companies want. So there’s no space to lease, which affects the statistics.

But that’s not the whole story.

Mr. Barron noted that tech companies are still barrelling ahead and smaller companies are picking up space steadily in lower-rated buildings, but the big traditional sectors – law, accounting, engineering, financial services – are not.

“Medium-sized companies and more traditional drivers of growth are far less likely to expand within the current environment,” he said. “Decisions to expand by some traditional industry sectors are being postponed in some cases.”

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More traditional companies are getting nervous about the increasing international trade fights, particularly between the U.S. and China, and a sense that prices are reaching their peak for office space, observers said.

Another factor: Vancouver’s painfully expensive housing market. One leasing expert after another called it the number one threat to the city’s economic health.

Then there’s the WeWork issue.

The U.S.-based company operates on a model of leasing space at the going rate in existing office buildings, fixing it up to be appealing to people who want hip spaces that are available short-term and in small chunks, and then renting it out at even higher rates – up to $100 or $120 a square foot. The highest price for a long-term lease in the newest office tower in Vancouver is $60 a square foot.

New York-based WeWork occupies or is committed to occupy a tremendous amount of space in the Vancouver region. It was the company behind the biggest lease deal in 2019, when it signed a long-term lease for 170,000 square feet in the under-construction B6 tower by BentallGreenOak and it has also committed to 77,000 square feet at Station Square in suburban Burnaby.

That’s on top of 262,600 square feet that it already manages in four downtown buildings, including two Bentall towers, 42,000 square feet in the hipster Main Street tech hub owned by Westbank’s Ian Gillespie and Hootsuite’s Ryan Holmes, 52,000 square feet at Marine Gateway in south Vancouver, and 59,000 square feet at Station Square in Burnaby.

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But the company has been in turmoil recently, as it tried to take the company public in August. The initial public offering failed because of investors’ doubts about its profitability.

That has led to public speculation that the company might run out of the money needed to pay for all the office space it has leased throughout North America – and that could affect the real estate market in many cities. In New York alone, WeWork is the biggest single tenant, with seven million square feet.

It’s a tricky business, say brokers, because of its business model, where it takes on a multiyear lease and then rents space to temporary tenants.

“It’s difficult to pair long-term liabilities with short-term commitments,” said Ted Mildon, the director of leasing at Oxford Properties, as the conference panel pondered the future of the popular model of co-working spaces.

In spite of that, most brokers say they’re still very enthusiastic about Vancouver’s office future, especially as the city continues to get stronger in the tech field.

It’s far from the biggest tech-job city in North America, where San Francisco, Seattle and Toronto come in ahead. But Vancouver was rated the fastest growing tech city in the 2019 CBRE report on tech talent, with a 43-per-cent growth in jobs the past five years.

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A new wave of building developers appear ready to bet on that, knowing that 55 per cent of what is being built now is already preleased.

On the horizon: Bentall 7, Mr. Gillespie’s planned new building at the Creative Energy site on Beatty Street, a tower for the long-vacant West Georgia Street site owned by Austeville Properties, a potential office building on the former Plaza of Nations site near the city’s stadiums, a new building at 1166 West Pender Street by Reliance Properties and, if it ever gets city approval, a new tower next to Waterfront Station downtown by Cadillac Fairview.

There’s room for all of that, many think.

“We added 13,600 new tech jobs the last two years,” said Mr. Mildon. “Canada has good immigration policies, the city has good time zones, good language skills. I feel like there’s no stopping this train.”

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