Trend #4 Office life has been regularly recalibrated now for 30 years and... things look different.
SIX HUNDRED PEOPLE were out last December 12 for the “jingle and mingle” party on the plaza in front of the cluster of Bentall Centre towers at Dunsmuir and Burrard in Downtown Vancouver. During the summer, another 600 showed up for a weekend party to celebrate dogs at Bentall's “bark park”—parking garage turned dog park—a few months earlier. The area also has food trucks regularly parked in front of the office buildings, musicians playing on the plaza and outfits like Lee's Donuts coming in for pop-up sales (and eventually turning into a tenant). The complex has partnered with Public Disco and the Vancouver Mural Festival.
That's all the result of intensive work by Hudson Pacific Properties, a West Coast-focused real-estate group that runs places like the Ferry Building in San Francisco and Sunset Las Palmas Studios in Hollywood. The company's goal: make office life desirable again by creating a sense of fun, interesting activity around it, as well as creating new spaces that serve some not-strictly-office needs like cool rentable party/meeting spaces or wellness centres.
“The office sector is going to learn a lot from what happened in retail,” says Chuck We, Hudson Pacific's executive vice-president in Vancouver. He doesn't think this is a short-term trend just to get employees back to the office after the height of the pandemic. “We feel like it's a permanent change. It's now a piece of running an office building and making an environment that is better for everyone.” Bentall is 90-percent leased in the current tough office situation as a result.
Not everyone is putting that level of effort into activations, but it's evident with many new work buildings that it's not good enough anymore just to provide big empty floors of office space and make sure the elevators and toilets are running okay. At The Post (Vancouver's former central post office, now slated to become the major Amazon hub), there's a grocery store, a food hall, a gym. At smaller new offices, there's invariably a restaurant and/or cool café. “Those would have been banks a generation ago,” says We. Even suburban business parks are putting in coffee shops or advertising walking trails on their properties.
This new thinking extends to office interiors. At Heritage Office Furnishings
(a wildly out-of-date name that doesn't at all reflect the company's current 21stcentury adventures in office design), staff are busy helping employers reimagine their workspaces and come up with consistent policies (for everyone, managers included) on working from home vs. in the office.
Employers are pushing to get their staff back to the workplace, in part to help build up the kind of team trust that simply doesn't thrive on Zoom. So how to get them there?
“We're looking at how to give people choice and control,” says Mike Meyer, vice-president of sales at Heritage, whose teams have put different kinds of office design on display at a pop-up space downtown to show off the possibilities. Giving choice means coming up with a variety of office environments with different levels of privacy, of loud versus quiet, of dark versus light, of group versus individual places to work. It turns out people are willing to come to the office more often if they have a dedicated desk. If that is financially or physically impossible, having some certainty—a locker, a booking system—can help replace that.
In spite of those efforts, the map of office work is going to change overall in the region. At the massive Real Estate Strategy & Leasing conference in Vancouver last fall, there was a lot of talk about the uncertainty of the office market and the likelihood of changes. CBRE Limited chair Paul Morassutti said “the office sector is the most vulnerable” of all the types of property out there. “Many lenders are avoiding office altogether.”
So far, Vancouver has not seen anything like the dire collapses of office value that a few American cities have. It has one of the highest return-to-work rates in the country and its downtown vacancy rate, at not quite 12 percent, is the second-lowest on the continent after Toronto. The region's overall vacancy rate, 9.6 percent, is also relatively sparkling. It hasn't seen anything yet like what happened in Los Angeles recently, where an office building sold for 52 percent less than it had been bought for five years earlier. Two notable towers in Van
“THE OFFICE SECTOR IS GOING TO LEARN A LOT FROM WHAT HAPPENED IN RETAIL. WE FEEL LIKE IT’S A PERMANENT CHANGE. IT’S NOW A PIECE OF RUNNING AN OFFICE BUILDING AND MAKING AN ENVIRONMENT THAT IS BETTER FOR EVERYONE.”
–Chuck We, Hudson Pacific's executive vice-president in Vancouver
couver were put up for sale in July last year and many analysts said their selling price would give an indication of what's in store for the city's office market in general and its downtown office picture in particular. But so far, no news of a purchase price.
At the moment, office development has slowed in the suburbs that had been trying to develop mini-business districts—surrey, City of North Vancouver, Burnaby, New Westminster. In Surrey, the Century Group has switched 129,000 square feet of planned office space to rental in a fourtower project on the books. “We had some space pre-leased but there were six projects chasing two tenants. As much as we wanted to do it, it was not possible to finance it,” says Bob Ransford, vice-president of development at the company. But few think that's going to last. As more and more office workers, plus founders and managers, choose cheaper places to live in the suburbs, having offices close to where they live will also be an incentive for reducing the work-from-home rate. “I see the day when Surrey will be a robust market,” says Ransford. “That's where the employees are. But it's hard to compete right now when there's high vacancy downtown.”
WORLD CALAMITIES, massive changes in shopping or office work, rising gas prices—in general, great news in recent years for owners of industrial property. Fuel costs skyrocketing? Then there's more demand to build and store goods on industrial properties as close to urban centres as possible. Online shopping increases? Supply chains wobbling internationally? More need for storage and distribution space. People buying more stuff? Demand for manufacturing space increases.
In spite of that, even the industrialproperty world in Vancouver has seen a recent slowdown. It's far from a crash. It mainly means vacancy rates have increased from near zero to a high of, gasp, 1.2 percent. But the industrial set are not quite as blissful as they used to be. Owners say that, where they used to have four tenants competing for each space that became available, now there are four spaces for each tenant.
Biotech and the region's bigger fashion companies, like Lululemon and Aritzia, are still expanding. A giant new Lululemon distribution centre in Delta— 370,000 square feet built by Wesgroup Properties—is one of the recent additions to the landscape. But fewer small- and medium-sized businesses have expanded or stayed in business as high interest rates wreak havoc on the economy and once-flush consumers reach the end of their pandemic savings. “It's the end of the binge from the COVID break. The volumes are down 20 percent from last year,” says Marko Dekovic, vice-president of public affairs at Global Container Terminals. “And it won't get to 2019 levels until 2027.”
But that is helping everyone catch their breath.
“It was a great time, but it was an unhealthy market. There was a real run-up in prices and a real decline in vacancy,” says Jean Batie, leasing manager at Wesgroup Properties. The steadily increasing lease rates did solve one problem that other sectors have not been able to cope with as well, which is the jump in interest rates and construction costs over the last couple of years.
Wesgroup is one of the latest to try out the new concept of multi-storey industrial with a Coquitlam project, as people try to work their way around the region's industrial-land shortage. “It's a new product and we're excited,” says Batie. Companies like Wesgroup have also had to gear up to new demands in the industrial sector: much higher ceilings (up to 40 feet) with huge new power requirements. They're putting them in, though, these days, they're not necessarily getting higher rents for them. But it is helping them land what they call the “golden geese”—the big distribution centres.
“IT’S THE END OF THE BINGE FROM THE COVID BREAK. THE VOLUMES ARE DOWN 20 PERCENT FROM LAST YEAR AND IT WON’T GET TO 2019 LEVELS UNTIL 2027.”
–Marko Dekovic, vice-president of public affairs at Global Container Terminals
THE PANDEMIC BROUGHT OUT a new breed of anti-urbanists—those who think downtowns have become public disorder cesspools and are doomed to die. And they almost revel in it, delighting in every report of smashed windows or stolen merchandise. But as troubled as some downtowns are, particularly in the U.S., Vancouver is in a different place.
Canadian retail expert Craig Patterson believes that Downtown Vancouver's luxury is going to have to compete in the future with Oakridge Park, which has nailed down several high-end retailers for the eventual date when its mall re-opens—companies that want a mall specifically designed to provide a clear signal that you're in pretend-versaillesland. “Luxury brands don't want to go to malls downtown. They want high ceilings and grand facades,” said Patterson, who runs the online newsletter Retail Insider. “I think Oakridge will split the market.”
But many others say that Downtown Vancouver is and will remain healthier than many other areas for reasons singular to this city. “Vancouver is specifically different from other downtowns. It has a large residential community. It is lively and walkable. All the major attractions are focused downtown,” says Penalosa.
The central business district might lose some office workers. But the many residents, shoppers, tourists, sports and concert fans and cruise-ship passengers will remain.
Hotel builders, who are on a roll currently in Downtown Vancouver, with almost a dozen projects in the works from Chinatown to Robson Street, will add more oomph to the area's gravitational pull.
The downtown district, it appears, still attracts the young and optimistic. Salman Zaidi and his brother, Sahan, carrying on with a family business from Pakistan, just opened a leather shop, Zaidi, in Vancouver's downtown. They saw that there were big brandname—and very expensive—stores selling leather in the city, but nothing like what they knew they could produce in stylish jackets and bags. They tried to get into malls but were told the wait lists were up to five years. So they opened on West Pender just a month before Christmas, sourcing leather from Italy and Japan, with a workshop and warehouse in Montreal.
It wasn't easy to get started. “Because of the rent, it's so expensive here. A lot of small business owners are afraid to have a storefront,” says 26-year-old
Salman. “And the banks—they don't want to risk their money with small businesses.”
But they got it open and the response has been “fantastic,” he says—both from customers and from their neighbours. One business sends them a pizza every day. Some shoppers have already become regulars. “It will take some time to build up the trust,” says Salman, “but we are trying our best.” He hopes that, in the Vancouver of 2050, he and his brother will still be here, owners of a long-established city business, helping make Vancouver's downtown an interesting and friendly place.