Two office buildings in downtown Vancouver are set to become hotels, marking a rare move in the city’s commercial property landscape, said Avison Young.

The Arts and Craft building at 576 Seymour Street, a six-storey heritage property whose façade will be preserved, and 225 Smithe Street, a newer mixed-use building, are both in the process of being converted into hotels from office spaces, Avison Young reported in its quarterly Metro Vancouver office market report.

The 225 Smithe building, located on the northwest the corner of Smithe and Cambie streets, has remained vacant since it was completed just three years ago. Tenants vacated the Seymour Street property several quarters ago.

The Evans family, which owns the OPUS Hotel, is behind the 225 Smith project. Chris Evans told Daily Hive Urbanized that the 26-storey tower will contain 36 guest rooms after the total 30,000 sf was originally intended for office use.

This shift comes as Metro Vancouver’s office vacancy rate increased by 60 basis points in the third quarter of 2024, reaching 11%. Vacancy rates have hovered around the 10% range for the past year, though most submarkets saw negative absorption, with the exception of Broadway, which maintained stability with 8,423 square feet of positive quarterly absorption.

The downtown core, however, saw a more significant rise in vacancy, which rose 80 basis points quarter-over-quarter to 13.6%. This change was driven by two high-profile tenant exits: Microsoft added 61,884 sf to the sublease market at 1090 West Pender Street, and WeWork vacated 68,785 sf at 595 Burrard Street.

Despite the changes, demand for premium office spaces, particularly class AAA and A buildings, remains robust.

In terms of new developments, the office market pipeline has slowed considerably. Although nearly 3.4 million sf of new office space has been added in the past three years, only three major projects, each over 200,000 sf, are currently under construction. This slowdown aligns with broader Canadian trends of repurposing underutilized office spaces; however, Vancouver has been slower to adopt widespread office conversions.

Investor confidence in the Vancouver office market appears to be growing despite rising vacancy rates, said Avison Young, with several large downtown office towers changing hands in recent quarters. Following a slower 2023, which saw just 14 sales transactions priced over $5 million, the first half of 2024 recorded 16 sales totalling nearly $700 million.

Many of these transactions involved partial-interest transfers, offering private investors the chance to acquire high-value assets from institutional investors who are looking to reduce their office holdings or exit the sector.

The Bank of Canada’s 50-bps interest-rate cut in October is expected to further boost office investment as capital becomes more accessible, said Avison Young. The report also notes a sharp increase in strata office sales, with transaction volume nearly doubling in the first half of 2024 compared to the second half of 2023.

As Vancouver adapts to shifting demands in the office market, office-to-hotel conversions and renewed investor interest could signal new trends for the region’s commercial real estate landscape, Avison Young believes.

Pictured: Heritage building at 576 Seymour Street in Vancouver

Photo: Bob Hare/Vancouver Heritage Foundation