COMPETITION FOR OFFICE SPACE GOING UP DOWNTOWN
Sector squeezed by new tenants, lull in tower output
The renoviction of a downtown Vancouver office tower is going to make it a little tougher for tenants to find work space in what is increasingly becoming a landlords’ market.
Bentall Kennedy recently gave notice to its tenants at 1090 West Pender St. that they must move out of the 76,000-square-foot building by July 31, Postmedia has learned.
The site had been slated for a redevelopment that will replace the 48-year-old, 12-storey building and parkade with a new 530,000-square-foot office tower and underground parking.
“I can confirm that, in accordance with our leasing agreements with each of our tenants at 1090 West Pender, all tenants will be set to leave the property in the coming months,” Bentall Kennedy’s president of real estate services, Tony Astles, wrote in an email to Postmedia.
City council approved a rezoning of the site in May 2015 to allow for a 31-storey, 564,000-square-foot tower rising up to 133 metres, with retail and service use on the lower two levels. The zoning allowed for 486 parking spaces.
“We are presently finalizing all efforts toward obtaining a development permit and then our intention is to commence with demolition of the parkade structure in fall 2018,” Astles wrote. “Demolition of the office building is expected to begin toward the end of 2018.”
He said Bentall Kennedy’s leasing team will be willing to assist tenants if they choose to seek tenancy elsewhere in their portfolio.
It’s a redevelopment that will eventually add space in 2022 to an office market that has seen vacancy creep downward.
“We anticipated that at some point Bentall Kennedy was going to pull the trigger, so to speak (on 1090 West Pender),” said Ross Moore, a tenant adviser with Cresa in Vancouver.
“Now we’ll have another 70,000 square feet of tenants out there going, ‘Where do we go?’”
Metro Vancouver’s overall office vacancy rate tumbled to eight per cent at the end of 2017, the lowest it has been in the region in roughly five years, according to a new yearend report from Avison Young.
The regional office vacancy rate fell from 9.7 per cent to eight per cent in one year, according to the report, released Feb. 2.
Downtown, the office vacancy at the end of the year was marked at 7.1 per cent, almost unchanged from 7.2 per cent a year earlier, but local brokers expect vacancy to slide as demand outstrips supply amid a current lull in new office completions.
In the largest lease deals of last year, Amazon took 147,000 square feet at the planned office tower at 402 Dunsmuir, Regus’ co-working brand Spaces took 67,000 square feet at 939 Granville and WeWork took 52,000 square feet at Bentall II. Facebook also took 45,000 square feet at Waterfront Centre, according to Avison Young’s report.
The deals at the top of the list suggest there’s a reshaping of downtown Vancouver’s office mix, said Brian Pearson, a principal with Avison Young in Vancouver.
“We’re seeing sustained demand from technology companies,” he told Postmedia.
“Over the last few years, (we’re) seeing Microsoft, seeing Telus, seeing Sony Pictures Imageworks and now Amazon all making substantial commitments to downtown Vancouver. It’s an interesting and well-established trend, moving away from what’s traditionally been your professional services firms (and) mining and minerals.”
The emergence of co-working spaces has also been intriguing local stakeholders, Pearson said.
“WeWork, at this time last year, was not present in our market,” he said. “The emergence of these shared work environments — WeWork, Spaces — it will be interesting to see … what their influence is on the market.”
Pearson said WeWork, if considered a tenant rather than a landlord, would represent the largest non-government tenant in downtown Vancouver.
“I think we’re going to see the vacancy rate continue to decline … particularly for larger tenants,” he said. “So, if you’re an organization that requires say 25,000 square feet or more of continuous space, (there are) very limited alternatives.”
There are no new office projects set to open downtown until late 2019, but following that, a new office building boom will get underway with the potential delivery of up to nine new office projects totalling 2.9 million square feet of space by 2023, according to Avison Young.
For now, the downtown office market remains tough, but eventually “you find something for everybody,” Moore said.
“I think people have this fear that there is nothing to lease and that’s not true,” he said. “There are always companies that are downsizing or consolidating, or for a whole bunch of reasons they don’t need space anymore, and so there’s always space coming on the market.”
The biggest challenge is meeting or managing tenants’ expectations. “I just met with a new client yesterday and the first words out of my mouth were, ‘We will have to compromise,’” Moore said. “It could be a great building but no parking, or great building but it’s nowhere near SkyTrain, or a great building but we’re looking into a lane,” Moore said.