Vancouver shedding ‘small-tenant’ office market tag

IMAGE: Chuck We, senior vice-president, Western Canada, Hudson Pacific Properties. (Courtesy Hudson Pacific)

Chuck We, senior vice-president, Western Canada, Hudson Pacific Properties. (Courtesy Hudson Pacific)

A few years ago, Bing Thom Architects conducted a study that found while the Vancouver region had a large concentration of head offices — ranking third in the country — they averaged only around 60 employees.

It seemed businesses in Metro Vancouver could only grow to a point.

The study was from 2014, and it highlighted the fact the region lacked heavily capitalized corporations that populate large spaces with professionals in high-paying jobs, such as those enjoyed just over the border in tech clusters in Seattle and Bellevue, Wash.

Chuck We, senior vice-president, Western Canada, Hudson Pacific Properties, told a Vancouver Real Estate Forum roundtable on Oct. 1 the situation had long been an obstacle for investing in the region.

“People talk a lot about why you would invest in Vancouver — it’s a city of small tenants,” said We, who chaired the forum and moderated a closing roundtable discussion on whether Vancouver is fully priced.

“We seem to be the tortoise versus the hare when you look at markets like Calgary and Toronto. But in economic times like this, it’s those small tenants that tend to keep the market moving and keep the buildings full,” he said.

Tech brings change to Vancouver office market

Kevin Leon, Crestpoint Real Estate Investments founder and president, echoed We’s comments.

However, he said the office landscape is rapidly changing due to growth in the tech sector, immigration and trade with Asia. Crestpoint, he said, invests almost entirely in Canada, with some assets in the U.S.

“One of the criticisms of Vancouver, especially on the office side, is that there’s just not a lot of large tenants looking at the marketplace,” said Leon. “It’s just incredible how much — and tech has had a big part in this — how much Vancouver’s demand characteristics have changed.

“And I look at it from all aspects, people wanting to live there and work there, whether it’s demographics or immigration, or whether it’s more trade with Asia.”

While Vancouver’s modest office market might not have justified its high land prices at one time, the increased demand — particularly by major tech players — has brought prices more in line with reality.

Michael Emory, president and chief executive officer for Allied Properties REIT, and a recent arrival to the Vancouver market, made it clear Allied is also bullish on investing in distinctive urban office spaces.

Toronto-based Allied this year purchased iconic Gastown mid-rise commercial building The Landing, bringing its Vancouver portfolio to 12 properties.

The company has also partnered with major Vancouver developer Westbank on a mixed-use building at 400 W. Georgia, which is leased and completes in 2021.

“Our focus is urban office space, and I’m fascinated and interested in the fact that Vancouver is transitioning from a very secondary urban office market, in my opinion, to a very primary urban office market in this country,” said Emory. “I think that evolution is important and I very much want Allied to participate in it.

“For us, the most distinctive part of the Vancouver market has historically been how extraordinarily expensive it is, and that was really difficult when we had pricing that was beyond belief in relation to assets, in an office market that was clearly less interesting and had less potential than some of the other alternatives in Canada.

“Today that premier pricing prevails, but I think the opportunity has grown in significance and is more or less commensurate now with the pricing and the cost required to pursue the opportunity.

“So, from my perspective, there is actually more alignment now in Vancouver office space than there has ever been, and that makes it all the more interesting to us going forward.”

Investment in Bentall Centre complex

We is overseeing the repositioning of the downtown landmark Bentall Centre complex for the growing tech and innovation market.

Canadian e-commerce success story Shopify is renovating its new 70,000-square-foot space in Bentall Centre according to COVID-19 safety requirements. Once it moves in, it will become one of the company’s major hubs.

Los Angeles-based Hudson Pacific had acquired Bentall Centre with an affiliate of Blackstone Property Partners in 2019, citing Vancouver’s proximity to Seattle as a draw.

Hudson Pacific’s We agreed with Emory’s assessment of the Vancouver market.

“There is always a premium in Vancouver, but now the market fundamentals are catching up to that premium,” We said.

IMAGE: Allied Properties REIT president and CEO Michael Emory. (Courtesy Allied)

Allied Properties REIT president and CEO Michael Emory. (Courtesy Allied)

Big picture, Emory said Allied is geared toward serving knowledge-based organizations that have seen incremental growth in recent years in Montreal, Toronto, Calgary and Vancouver. Those enterprises have seen growth before and during the pandemic, and he expects growth to continue post-pandemic.

Tech could even help pull Calgary out of its deep downturn due to plummeting oil prices.

“In Vancouver, I think tech has been almost all of the incremental demand in recent years, and it’s what transformed it from a very secondary office market for all the reasons mentioned, into what I think will possibly become the second-most-important office market in this country in the fullness of time,” said Emory.

Is work-from-home a threat?

A few observers at the forum remarked on Facebook’s announcement early in the pandemic that it expected about half its workforce to work permanently from home in the next decade.

However, they noted, the tech giant had also made recent and seemingly contrarian deep dives into the commercial real estate market. Facebook purchased REI headquarters near Seattle, which means the company now owns more than two million square feet of space in that region. Facebook also leased a 730,000-square-foot building in New York.

Executive vice-president Richard Weir said Bosa Development Corp., has been active in Washington and Southern California office markets, where tech and biotech clusters have driven the demand.

Many firms, he said, are expanding and tapping into growing pools of talent.

Bosa is a major residential and commercial development and asset management company in Western Canada, a household name for more than 50 years. Founder Nat Bosa is now the chairman, with son Ryan in the president’s seat.

“We are perhaps a more complete company than we have ever been. And we are very liquid at the moment, so we are actively looking for opportunities,” Weir told the roundtable.

The recent acquisitions by Facebook and other tech giants are moves to note, he said.

“It’s very indicative of the fact that these companies are not abandoning their physical presence and I think it’s also indicative of the importance of clusters, and I think where Vancouver really stands to grow in the future is that we are becoming a technology cluster,” said Weir.

“With all the attributes necessary including a very progressive immigration policy, I think that bodes very well for growth in the Vancouver office market.”

Canadian dollar buoys Vancouver offices

Leon said there were a couple of other features driving the Vancouver commercial market, including the attractive Canadian dollar for American companies.

“We think Vancouver is expensive but on a U.S. dollar basis, it’s not that expensive,” said Leon. “So I think that has to be kept that in mind.

“If you don’t believe the dollar is going back anywhere close to par, in the next five to 10 years, that’s still going to be a competitive advantage for Vancouver.”

In a separate email interview, Michael Heeney, who took part in another panel at the Forum — and was involved in the 2014 Bing Thom Architects study on head offices when he worked at the firm — said the dollar definitely had a role to play.

Heeney is president and CEO at Surrey City Development Corporation, working to attract tech companies to the emerging Surrey downtown.

“(Tech-related companies) can pay them less than a similar employee in Washington State and, that they do not have health insurance burdens further warms the pot,” he said. “These companies have a long tradition of accommodating their staff in superior work environments to encourage them to work longer hours.

“There is also incessant poaching between companies which leads to further one-upmanship in quality and features, hence the interest in premier office space.”

Kerry Gold has spent more than a decade as a full-time freelancer, writing a weekly real estate and housing column for the Globe and Mail. She also writes investigative pieces…

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Kerry Gold has spent more than a decade as a full-time freelancer, writing a weekly real estate and housing column for the Globe and Mail. She also writes investigative pieces…

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