'Downtown is stabilizing': Mixed signals from latest downtown Vancouver business report

Office vacancy was 12.3% in 2025 (vs ~2% pre-COVID), while storefront vacancy fell to 12.7% — the lowest in three years — with a net gain of 29 storefronts (17 restaurants, 13 retail). Downtown visitor levels held steady, Granville Street saw 51.5m visits and locals comprised 46% of visitors; hotel occupancy was 81% with three approved hotels adding 1,200 rooms to a pipeline of over 6,000 rooms. Persistent safety/public-disorder issues and ~2.5M sq ft of recent new office supply keep demand cautious, indicating a stabilizing but fragile recovery for downtown Vancouver.

Analysis

Downtown is bifurcating: assets with capital, modern amenity sets, and proactive safety programs will capture incremental footfall and command spreads, while smaller, under-capitalized owners face multi-year leasing and re-tenanting friction. Expect differentiation not just by location but by operator — the market will increasingly price operational capability (security, F&B programming, short-term activation) as a premium, creating a wide performance dispersion across landlords within 6-24 months.

The visitor-composition shift toward locals and event-driven spikes changes demand mix: lower-margin, frequency-based spending (grocers, convenience, neighbourhood services) will outperform one-off tourist discretionary spend. Conversely, businesses and landlords that rely on incidental tourist spend or on high room-rate RevPAR growth will see revenue growth cap as alternative supply and shifting demand characteristics re-rate returns over a 12-36 month horizon.

Office fundamentals are being reshaped by tenant behavior — higher renewal-to-relocation rates and rising sublease inventory increase landlord incentive to invest in retrofit/amenity spend or pursue conversion optionality. That optionality (conversion to residential/hybrid or densified retail) is valuable but requires patient capital and faces regulatory/entitlement timelines that create asymmetric upside for owners who can execute within 2–5 years.

Catalysts to watch: municipal public-safety initiatives and large anchor lease renewals/signings (near-term positive), hotel openings and planning approvals (medium-term supply shock), and any high-profile safety incidents or cross-border policy shifts (major risk). Tradeable windows will cluster around announced capital programs, major events, and quarterly RevPAR/occupancy prints that either validate or disprove the “stabilization” narrative.

Key Decisions for Investors

• Long Allied Properties REIT (AP.UN.TO) — 12–24 month horizon. Size a core position (e.g., 2–4% NAV) and overlay a protective 9–12 month put (10–15% OTM) to limit downside if office demand deteriorates further. Rationale: landlord with balance sheet/track record to retrofit and repurpose mid-market office stock; reward: 20–35% total return if asset upgrades drive rental premiums; risk: secular office weakness or capex overruns.
• Long Brookfield Asset Management (BAM) — 12–36 month horizon. Buy equity or Jan-2027 call spread to capture optionality of large-scale redevelopments and capital redeployment into higher-yielding mixed-use conversions. Rationale: scale and execution advantage to consolidate mispriced urban assets; reward: asymmetric upside from successful repositioning; risk: execution delays or cyclical sell-off in risk assets.
• Directional short / put-spread on Host Hotels & Resorts (HST) or similar lodging REITs — 6–18 months. Use a 6–12 month put spread to express downside if incremental room supply and a slower mix of high-spend tourists pressure RevPAR. Rationale: domestic event-driven lifts are transient; new supply and shifting guest mix cap upside. Risk: upside from stronger-than-expected event demand or faster recovery in international arrivals; target 25–40% downside vs premium paid for hedges.
• Relative trade: Long First Capital REIT (FCR.TO) vs Short SmartCentres REIT (SRU.UN.TO) — 6–18 months. Size as a market-neutral pair to capture tenant-mix and urban-retail execution dispersion; entry around current levels with 10–15% stop on pair-level movement. Rationale: neighbourhood-focused, well-curated retail landlords should outperform large auto-centric retail platforms as local footfall shifts; reward: 15–30% relative outperformance; risk: broad consumer spending surge that lifts both legs equally.