RISE OF THE OFFICE CONDO
Smaller firms drive demand
Demand and investment are mounting in Metro Vancouver for strata office units as values for those assets reach levels comparable with residential condos in the region, say local experts and investors.
In the past two years there has been roughly $280 million worth of sales in strata offices in Metro Vancouver — also known as office condos — according to a report by Colliers International. The report revealed that strata office sales reached $120 million by the third quarter of last year — nearly twice the total from 2010.
“Although the 2015 office condo market recorded lower sales volume in comparison to 2014, it is more an indication of a lack of quality product than a lack of demand,” the report said, which highlighted Downtown Vancouver and the West Broadway corridor as locations with the highest purchase prices.
Demand for office space in the region has been “evolving,” with small- and medium-sized companies looking to acquire their own spaces as owners, said Kirk Kuester, Colliers’ executive managing director in Vancouver.
“Lease rates are high, especially for new, high-quality office space,” he said last week. “If you look at all the new office buildings that have been built, they’ve leased up quickly and they’ve achieved relatively high rents in relation to the rest of the market.”
He said the economics now make sense for many smaller firms to own their office space.
“You have no idea how many calls we get from people looking to buy a small office building downtown,” he said. “They say ‘show us a small office building downtown that we can buy and own and we’ll occupy some space and rent out the rest of the space.’ But it doesn’t happen. You can’t find that.”
Kuester said smaller financial, legal, engineering and insurance firms seem to be driving the demand. “There are all the little guys who are saying ‘hey, we’d love to have 2,500-square-feet, 3,000 feet.’”
Vancouver-based Chard Development is hoping to tap into that demand with plans to break ground in January on a four-storey office strata building at 34 West 7th Ave. in Vancouver’s Mount Pleasant neighbourhood.
Chard Development has been active in the commercial and residential market in Victoria and Vancouver for about 20 years. The firm is motivated by Mount Pleasant’s emergence as a tech hub with a relatively young workforce, said Dave Chard, the firm’s president and CEO.
“We are quite familiar with the area,” he said. “We did the MEC head office about 20 years ago down on 4th Avenue.”
Chardsaidthenew54,000-square foot building is being designed by Proscenium Architecture and Interiors. The zoning allows for service, retail and light-industrial use on the main floor, with strata offices above, he said.
“It’s very difficult for smaller businesses to acquire their own office space,” he said. “Traditionally you’ve got to lease it, and what we’re trying to do is provide the opportunity for small- and mediumsized businesses to be able to acquire their own real estate.”
Chard said they’re aiming to start building in January 2017 with an 18-month construction period. The building would likely end up with about eight owners in units of 5,000-10,000 square feet.
The building will have two levels of underground parking as well as bike storage and end of trip facilities in the building, he said. “We anticipate a lot of people will bike to work.”
Similar to the residential market, the cost of commercial space is also pricing a lot of people out of the Metro Vancouver market, said Brady Fleguel, a real estate appraiser with Burgess, Cawley, Sullivan & Associates.
“The barrier for entry is so high to actually own an office building,” he said. “We’re talking $10 millionplus for an entry-level office building, but if the building is stratified you can buy your unit for $500,000, or $1 million.”
He said West Broadway has proven to be a vibrant market for strata office. Broadway recorded the highest sales volume with just over $90 million in 2014, according to the Colliers report, which attributed the total to Orca West Development’s Neelu Bachra Centre, which was completed in 2014. That project was one of the first new office condo developments to be completed in that area, and sold for an average price of $862 per square foot.
Fleguel said the area is driven by medical firms that want to be located around Vancouver General Hospital. “If you look up and down that corridor, the current vacancy for office is around three per cent because medical users tend to be stable tenants and they haven’t built a lot of new product in the area recently.”
He said prices for strata office units have occasionally rivalled residential condos, but residential is still king when it comes to strata, reaching the $1,000 per square foot range. “Would an office condo sell for that? I don’t think so. Not an average or across an entire project.”
You have no idea how many calls we get from people looking to buy a small office building downtown.