Greater Vancouver's downtown office market is sitting at vacancy levels not seen in over two decades. The institutions that helped inflate it are now the ones walking away.
The QuadReal Drag Nobody Wants to Headline
BCI — the Crown corporation managing $295 billion for BC's six public-sector pension plans — posted a 7.5% overall return for fiscal 2024. That number looks clean until you pull apart what carried it. Equities and infrastructure did the heavy lifting. Real estate, managed through BCI's platform company QuadReal Property Group, was the drag.
BCI isn't alone. Morningstar DBRS reported in August 2024 that major Canadian pension funds — BCI included — recorded negative real estate returns ranging from -5% to -16% in fiscal 2023. Real estate was cited as the drag on first-half 2024 returns for four of Canada's largest funds. That's not a bad quarter. That's a repricing event unfolding in slow motion across a $295-billion book, and the people on the other end of the obligation are 500,000 BC public-sector workers and retirees.
BCI operates under the 1999 Public Sector Pension Plans Act. Its fiduciary duty is not ambiguous. When an asset class posts those numbers two years running, reallocation isn't a strategic option — it's a statutory requirement.
What the Vacancy Numbers Are Actually Telling Lenders
Colliers' Q4 2024 Vancouver Office Market Report, released January 13, 2025, put Greater Vancouver office vacancy at 9.8% — up 1.2 percentage points year-over-year and triple the 2022 low of 5.9%. Downtown averaged 11.6% for the full year 2024. CBRE's Canada Office Figures for Q4 2024 put the national rate at 18.7%, and as of Q3 2025, Vancouver and Waterloo Region were the only two markets still at or above their pandemic-era vacancy highs.
Class B and C buildings are absorbing the worst of it. Colliers' data show Class B/C vacancy hitting 12.8% in 2024 against roughly 8% for Class AAA. That bifurcation matters because the pension funds hold a lot of the premium stock — but the comps being set by distressed mid-market transactions are dragging appraisal assumptions across the entire downtown core.
Charter banks have already internalized this. Loan-to-value ratios on office refinancings that sat at 65% three years ago are now being underwritten at 55%, sometimes lower, with stress-test vacancy assumptions that would have seemed extreme in 2019. Any owner who needs to refinance in the next 18 months is going to face a hard conversation about the gap between their book value and what a lender will actually advance.
"The appraisals are still catching up," said a Vancouver commercial mortgage broker who asked not to be named. "The bid-ask spread on anything Class B downtown is wider than most owners want to admit."
CPPIB's Discounted Sales Are Now Comps — That's the Real Problem
CPPIB's global real estate portfolio sits at C$41.4 billion within its C$590.8-billion fund. The board sold two Vancouver office towers at discounted prices in 2023 and 2024. OMERS, meanwhile, trimmed its real estate allocation from 16.8% in 2022 to 14.8% in 2023, per Morningstar DBRS commentary reported by REMI Network. CPPIB's five-year annualized real estate return to mid-2024 came in at less than 1%, according to CRE Daily citing fund disclosures.
Here's the mechanism most coverage skips: pension funds carrying private real estate use appraisal-based valuations updated quarterly or annually by third-party appraisers who work from income capitalization models anchored to rent rolls and cap rate assumptions. When transactions are thin — as Vancouver office has been since 2022 — appraisers are slow to move cap rates because there aren't enough comparable sales to justify the adjustment. The Bank of Canada's 2024 Financial Stability Report said it plainly: write-downs have likely lagged true market declines, and further adjustments are probable. The IMF's 2025 Financial System Stability Assessment of Canada echoed the concern, calling for strengthened oversight and disclosure requirements for large public pension funds.
CPPIB's discounted sales are now doing the work of establishing new comps. Every appraiser working a Class B tower in downtown Vancouver has to wrestle with those transactions. The fund's size means even a modest allocation shift sends a signal that reverberates through every mid-market deal in the city.
The Bank of Canada's 2024 Financial Stability Report confirmed pension funds and insurers reduced CRE exposure and wrote down office-subsector assets — and flagged the sector as a systemic risk. Approximately 15% of Canadian pension funds' total assets were allocated to commercial real estate as of the 2024 reporting period, per that same report. That's a large anchor in a market where the anchor is dragging.
The Buyers Replacing Pension Funds Don't Play the Same Game
When OMERS trims real estate from 16.8% to 14.8% in a single year, the assets on the other side of those trades aren't going to other pension funds. They're going to opportunistic private equity, family offices, and conversion specialists who underwrite to distressed assumptions. That changes who owns downtown Vancouver office stock over the next decade — and it changes how those buildings get managed, capitalized, and ultimately repositioned.
The second-order effects are already in motion:
- BC Assessment commercial values will lag transaction reality by 12 to 18 months, creating a temporary municipal tax windfall before a cliff — a timing mismatch that Metro Vancouver municipalities are not visibly planning for.
- Office-to-residential conversion applications are likely to spike as pension funds and their successors seek exit strategies that preserve some land value.
- Private credit funds are stepping into the refinancing gap that banks are quietly vacating, at spreads that punish overleveraged landlords.
- Institutional exit concentrates ownership in fewer, less capitalized hands, accelerating deferred maintenance cycles in Class B stock.
- The capital leaving office is being redeployed into data centres, infrastructure, and private debt — reshaping which BC sectors get long-term institutional backing.
QuadReal manages 140-plus properties and more than 40 million square feet of gross leasable area. Even a measured rotation out of office CRE at that scale is a structural shift for the Metro Vancouver market, not a footnote.
The Contrarian Case, and Why the Timing Risk Is Real
A veteran commercial broker who has closed deals through the 1994 correction, the dot-com bust, and 2008 would push back on the doom framing: Vancouver has no significant new office delivery projected through 2027, and a development pipeline choked by construction costs. If even 30% of hybrid workers get called back full-time over the next two years and the tech sector stabilizes, effective vacancy could tighten faster than the 9.8% headline suggests. The pension funds selling now might be locking in losses at the wrong moment — the same way they were buying aggressively at the top in 2021.
That argument has merit on the supply side. It has less merit on the write-down side. The open question BCI's 2025 Annual Report will need to answer is whether QuadReal's BC office holdings have been written down to levels that reflect actual transaction comps, or whether the appraisal cycle is still running behind reality. The Bank of Canada and the IMF have both flagged this lag explicitly. If the answer is the latter, the pain isn't behind BCI — it's still ahead of it.
The $115-million sale of the Tilbury Distribution Centre in Delta to Prologis in March 2025 — one of Greater Vancouver's top CRE transactions of the year, per RENX — illustrates where institutional appetite actually is: industrial and logistics, not office. The capital is moving. The question is how much of the office book gets repriced before it does.
