WeWork deal sends ripple through local market
The $1-billion deal that saw commercial real estate firm WeWork buy the Hudson’s Bay Co.’s flagship Lord & Taylor store in New York will spark a small transformation of downtown Vancouver’s commercial real estate sector between office and retail.
WeWork will take over Lord & Taylor’s landmark building on Fifth Avenue in Manhattan as its global headquarters in a transaction that will also allow the firm to lease store space in Vancouver, Toronto and Frankfurt, Germany.
In taking the upper floors of Hudson’s Bay’s historic Vancouver store, WeWork wins some additional space in an increasingly squeezed office market to expand the beachhead it established earlier this year by leasing seven floors in the Bentall III office tower downtown.
“(The deal) says two things very clearly,” said Norm Taylor, executive vice-president of commercial real estate firm CBRE, speaking about its implications for Vancouver. “The fact (WeWork) is coming into our marketplace is a positive because it’s validation for our economy and local talent pool.
“And secondly, it shows the tightness of the downtown (Vancouver) market.”
WeWork, which packages shared office space for short-term users, was looking to recruit a roster of freelancers and technology-and-design-firm customers, but saw most of its space snapped up as online retail giant Amazon expanded its substantial presence in Vancouver, Postmedia News has reported.
CBRE, on the morning WeWork and Hudson’s Bay announced the deal, released its latest market report, which showed downtown Vancouver’s office vacancy had dropped to five per cent, its lowest rate since 2013 when the city was in the middle of its biggest office-construction boom in the last two decades.
Taylor said turning old retail space to office space isn’t a new phenomenon for Vancouver — the former Sears location on Granville was converted to a smaller Nordstrom, freeing up room for prominent branded space for Microsoft and Sony Pictures Imageworks.
And with big-box retail becoming a tougher business, Taylor said such conversions serve a dual purpose, particularly in Vancouver where the market has run out of options for tenants that need large spaces despite the recent building boom.
“These buildings, built a long time ago, (have) big floor plates that you wouldn’t be able to convert to residential easily,” Taylor said. “But they will work for office.”
Downtown Vancouver saw its office-vacancy rate peak at 10 per cent at the start of 2016, according to CBRE’s report, but has been steadily ratcheted down by demand from the tech sector, Taylor said.