The week's top commercial real estate stories take another look at proposed mortgage changes aimed at reducing mortgage defaults, drawing criticism from certain commentators. In the office sector, new projects and proposed tech expansions continue to support the high demand for centrally-located office space in Vancouver. In Victoria, a major land sale is set to revive plans for a waterfront multi-use development.
Here are Western Investor’s pick of the top real estate stories published this week.
Investors speculate with new Vancouver office tower – Western Investor
A new Vancouver office tower built on spec hopes to profit off tech demand for more premium office space – and it may have just made a very strong bet.
Ground was officially broken October 11 on Vancouver Centre II, a 371,000-square-foot Class AAA tower at 753 Seymour Street at the intersection of West Georgia Street. The new high rise is the next phase of the Vancouver Centre complex, which includes Scotia Tower and the Vancouver Centre Mall, which will both be linked to the Vancouver Centre II by an expansive lobby.
GWL Realty Advisors is developing the tower on behalf of the project owners: The Healthcare of Ontario Pension Plan, the Great-West Life Real Estate Fund, and London Life Real Estate Fund.
Construction will continue on a speculative basis, confirmed GWL president Paul Finkbeiner. “With its premier location and exceptional design, we expect that Vancouver Centre II will attract considerable market interest,” he said.
According to a recent survey by Avison Young, the vacancy rate for premium Class AAA office space in downtown Vancouver is 5%, the second lowest in Canada, behind Toronto. Vancouver, however, has Canada’s highest average rents for premium office space.
In a September scenario of a multinational tenant attempting to lease such space in downtown Vancouver, Avison Young found there was nothing available on a direct lease and only 75,000 square feet in sublease space.
“Strong deal velocity, including a number of new downtown leases signed in the first half of 2017 signal a further decline in vacancy,” cautioned Avison Young principal Glen Gardner, who specializes in downtown office leasing.
Gardner said the Vancouver Centre 11 is the first of from three to five new office towers expected to start downtown over the 12 months, in what he called “the next wave.” All told, the new towers could deliver up to 1.2 million square feet between 2019 and 2021.
WeWork expands in Bentall Centre – Business in Vancouver
Co-work and tech companies are taking over Vancouver office space and new developments are seeing a plethora of demand, Business in Vancouver’s Peter Mitham reports.
With the completion and grand opening of WeWork Cos. Inc.’s space at Bentall 3 just weeks away, the company is setting its sights on further expansion in 2018.
The company has inked deals for an additional floor at Bentall 3 and 53,988 square feet of space in Bentall 2, which, come September 2018, will bear the company’s name. The deals make it the largest single tenant in Bentall Centre, with a total of 146,205 square feet in Vancouver.
Right now, the emblem of National Bank crowns Bentall 2, but the financial institution is among the tenants moving to the Exchange (475 Howe Street), which will be completed later this year.
Bryce Margetts, vice-president, Western Canada, with Canderel Management Inc., said the latest deal will give WeWork street frontage where it will have a reception and pub area as well as five floors. This will not only augment WeWork’s space offerings, but animate a plaza distinguished largely by the late Seattle artist George Tsutakawa’s sculpture Fountain of the Pioneers (1969).
“We wanted to reposition that building to capture some of the smaller tech tenants in town, so it achieves our business plan of creating a lively gathering place at the base to replace the bank,” Margetts said.
WeWork is continuing to scout additional space, responding to the “tremendous enthusiasm” the company has identified in the Vancouver market.
Core sentiments
WeWork’s expansion contrasts with the growth of Regus, Vancouver’s largest provider of co-working space. Tenant representation firm Cresa Global Inc. reports that Vancouver co-working space totals 790,000 square feet, of which Regus operates 354,000 square feet. In addition to major blocks of downtown space, Regus has several suburban locations including 20,500 square feet in Burnaby’s Brentwood area.
A toehold in the suburbs may not be a bad idea. The fall office market report from brokerage NKF Devencore notes, “With the amount of available space rapidly diminishing in downtown Vancouver, and the next development cycle not expected to have an impact on the office market until 2021, tenants may find their best leasing opportunities in the suburbs.”
Colliers International recently surveyed its brokers and found a majority expect net effective rents and tenant demand to grow less aggressively in Burnaby, Richmond and Surrey versus the downtown and Broadway markets.
Vancouver developer buying Victoria’s Dockside Green – Business in Vancouver
Local developer Bosa Developments has purchased a parcel of sizable mixed-use land that was once a vacant, dormant site. Now, Victoria’s development potential has picked up and this sale might be one of the first key sales representing renewed confidence in major developments.
Bosa Development, the company that owns the Fairmont Empress Hotel, is purchasing Victoria’s multi-use Dockside Green development from Vancity.
The sale for the planned community in VicWest closes December 15.
The Vancouver developer already owns the Fairmont Empress Hotel.
“Dockside Green is an award-winning project that’s led the way in building a dynamic and sustainable local community,” Ryan Bosa, president of Bosa Development said in a release Tuesday.
Dockside Green is a renowned development featuring residential and commercial space on 15 acres of land. It started more than 10 years ago as what was once an industrial site has been transformed into an environmentally friendly development.
When the global financial crisis hit, construction stalled on the site. A new vision for the multi-use site has been approved by the city of Victoria.
New proposed mortgage rules unnecessary, harmful for homebuyers: Fraser Institute – Business in Vancouver
A proposed measure by Canada’s Office of the Superintendent of Financial Institutions (OSFI) intended to reduce mortgage defaults is drawing criticism from the Fraser Institute, Business in Vancouver reports.
The new rules would require all homeowners – even those who have down payments of 20% or higher and do not require mortgage insurance – to qualify for a mortgage 2 percentage points higher than the rate they are applying for. According to the institute, there is no need for this, and it will do nothing but hurt homebuyers.
“This proposed stress test for financially sound homebuyers in unnecessary and will do more harm than good,” study author and public policy consultant Neil Mohindra said.
“Canadian homebuyers will pay the price.”
Some of the risks include higher loan pricing and reduced mortgage access. As well, competition could suffer.
The Fraser Institute said the rules were developed in part in response to the 2008 recession; the crisis led to new international standards being developed as a response to weak underwriting practices in the U.S.
“Arrears data indicate that underwriting standards in Canada have consistently remained strong,” Mohindra wrote.
“For uninsured mortgages, the homeowner’s equity provides significant protection to the lender against loss.”
The report argues that financial institutions already have in place the ability to prescribe a combination of underwriting criteria to minimize risk. Even without the new rules, according to the report, OSFI already has the rules it needs to address what it may perceive to be weaknesses in underwriting practices.
