The week’s top stories focus primarily on downtown Vancouver development, from the revitalization of the Granville Street strip to major office property sales. Just outside Vancouver, a new industrial business park is coming to fruition on Aboriginal land.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
Downtown Vancouver’s white-hot office market is proving a profitable sector for some retired Ontario public employees.
On September 20, the Ontario Municipal Employees Retirement System (OMERS) announced the sale of a 19-storey office building on Burrard Street for $225 million, $108 million above its assessed value. At $1,000 per square foot, it is considered a record price for an existing non-strata Vancouver office building.
On September 25 the pension fund, one of Canada’s largest, announced the start of construction on a 36-
storey office tower on Melville Street through its Oxford Properties Group real estate arm.
OMERS has entered a 50-50 partnership with the Canada Pension Plan Investment Board on the project. Oxford bought the Melville Street site from Amacon in 2010 for $26 million.
It is not a pure speculation play.
The 540,000-square-foot Class AAA building has already attracted pre-leases from a trio of blue-chip firms. Ernst & Young LLP, Blake, Cassels & Graydon LLP and multinational law firm DLA Piper have taken 207,000 square feet of space collectively. With on-site demolition already underway, construction is set to start in 2019’s first quarter and be completed two years later.
Oxford is also building a nine-storey, 147,000-square-foot office tower at 402 Dunsmuir Street, which is already fully leased to online retail giant Amazon. It is scheduled to be completed in early 2020. Oxford placed a moratorium on its Melville construction announcement, which was lifted September 26, but it came as no surprise to the commercial real estate sector.
In a second-quarter report released in August, Avison Young had listed 1133 Melville in its downtown development timeline and correctly projected the start and completion date, along with two of the pre-lease tenants.
Based on Vancouver’s performance this year, other big office towers taxiing along the runway could also be ready for takeoff shortly.
The space is needed. Vancouver’s downtown office vacancy rate has plunged to 5% – second lowest in Canada – and could hit all-time lows by next year, analysts say.
Vancouver has also recorded the largest price increase in North America for downtown prime office space, according to Peter Senst, president, Canadian capital markets, at CBRE Ltd.
Net rental rates for new Class AAA space downtown are approaching $60 per square foot and gross occupancy costs are flirting with $85 per square foot, Avison Young confirmed.
Glenn Gardner, an Avison Young principal who specializes in downtown office leasing, said vacancy in the core will continue to tighten during the next 18 months as new towers are built.
The building rush is on. In the largest wave of new office development in years, 4.3 million square feet is projected to arrive by 2022, representing a nearly 20% increase in the entire downtown office inventory.
Hotel Belmont to open next spring on the site that also includes Comfort Inn.
Granville Street is set to get a new look by next spring with the new Hotel Belmont replacing the Comfort Inn at the corner of Granville and Nelson streets, the building’s owner and Pacific Reach CEO Azim Jamal confirmed to Business in Vancouver October 4.
The Comfort Inn, its street-level Doolin’s Irish Pub and its basement nightclub Belmont Bar will all close for business on October 31 with renovations starting the next day, he said.
The transformation is part of broader change on the Granville strip.
A couple blocks north, Regus-owned Spaces is expected to be open by the end of 2018, offering co-working spaces for entrepreneurs in the former Tom Lee Music building at 929 Granville Street. Blueprint also intends to open its fourth Colony restaurant at 967 Granville Street, in space that was the Caprice Nightclub, by December, Blueprint’s director of people and culture Hanna Jane Price confirmed to BIV on October 3.
“We’re not demolishing anything,” said Jamal, whose company bought the Comfort Inn site from longtime owner Granville Entertainment Group in mid-2017.
“We’re renovating the existing property. It’s a great corner.”
The 82-room Comfort Inn building was constructed in 1912 by Major James Matthews, a New Zealand expat who went on to become city archivist in the 1930s, according to Pacific Reach. Since then the building has housed the Hotel Belmont, the Nelson Place Hotel and the Nelson Beer Parlour. In the 1990s, the Nelson Beer Parlour evolved to be the tapas restaurant Babalu, which booked Michael Buble to sing during the early days of his career, according to Pacific Reach.
The site's basement, which is now home to the Belmont Bar, decades ago was the exotic nightclub, Champagne Charlies. In the mid-1990s, that space was The Cellar.
Jamal expects the renovation to take six months with the result being a “lifestyle, boutique hotel that is going to be fun, hip and current,” with a bar at street level to be named the Living Room. A separate bar underground will be named the Basement, he said.
He expects what he called a “stylish” and “trendy” crowd.
“This is going to be the start of a real renaissance and reinvigoration of the Granville entertainment scene,” Jamal said.
CBRE Ltd. was first to market two weeks ago with its report on Metro Vancouver investment sales in the first half of 2018, pegging them at $5.6 billion.
Now, several more have appeared with their own tallies, reinforcing the generally strong trend.
Avison Young, looking at the whole province, identifies 102 deals worth more than $5 million in the first half of the year. The aggregate value of the transactions is $3 billion.
Colliers International, tapping data from RealNet, pegs the value in Metro Vancouver at $4 billion on a volume of 644 transactions. Altus Group, meanwhile, tallies 1,033 transactions worth more than $1 million, totalling $6.6 billion.
Drilling into the figures, Colliers highlighted the generally strong pricing, a point Paul Richter of Altus Group echoed even as average transaction value in the first half of 2018 declined 2.5% from a year earlier. Redevelopment prospects linked to infrastructure buoyed investor hopes, though Avison Young sounded a note of caution.
“Can these prices continue?” Pearce mused during his recent reflections at NAIOP, and Avison Young’s answer appears to be “No.”
While cheap debt and short land supplies have helped boost deal values across the board, uncertainties are creeping in.
“A pause in the residential land market connected to heightened political uncertainty, rising construction costs and affordability issues is starting to foster a more cautious approach from buyers and lenders alike,” Avison Young said.
Real Estate Board of Greater Vancouver (REBGV) president Phil Moore observes that commercial real estate transactions followed the general downward trend of residential real estate in the first half of 2018.
The numbers from Sotheby’s International Realty Canada for the city of Vancouver show the residential market is taking a harder hit.
Sales in excess of $4 million dropped by a third in the second quarter, while sales over $1 million fell 25% versus the same period last year. This compares with a 16.3% drop in commercial volumes in the REBGV area over the same period.
Parcel of 110 acres of reserve land will depend on “market drivers” to steer PoCo industrial project.
It is at least a year away from signing its first tenants, but the Aboriginal-owned Kwikwetlem Business Park in Port Coquitlam is not expected to have much problem filling up due to a severe shortage of industrial land across Metro Vancouver.
The industrial vacancy rate in the Metro region stands at 1.4 per cent, the lowest in Canada. There are virtually no large parcels of industrial land left to develop, according a second-quarter survey by Colliers International.
Chief Ron Giesbrecht of the 107-member Kwikwetlem First Nation, also known as the Coquitlam Indian Band, said the site with frontage on Pitt River Road would be built out in three phases. The first phase will be a $15 million, 105,000-square-foot health and wellness centre for the use of band members and residents of the Tri-Cities area.
The following phases, Giesbrecht said, “will be market driven.”
Those market drivers would likely steer towards distribution warehouses and light manufacturing, according to John Boer of Colliers, who will act as the listing agent for the park with co-Colliers agent Chris Morrison.
Giesbrecht said the Kwikwetlem First Nation is primarily interested in attracting build-to-suit tenants, both commercial and light industrial, under long-term lease agreements to provide steady income.
He said the band would consider selling parcels of the land, which will be offered under 97-year lease agreements. The most recent assessments pegged the leased land values at $1.7 million to $2.25 million per acre, he added.
The development is currently awaiting a master services agreement for water and sewer services with the City of Port Coquitlam, which began negotiations in October 2016.
Laura Lee Richard, Port Coquitlam’s director of development, said a two-year delay for such an agreement is not uncommon. She could not provide a time frame on when the negotiations would complete.
Giesbrecht, who hopes the park will see construction start by next summer, said that the idea to develop the reserve land started 20 years ago. The band’s subsidiary, Saskay Land Development, runs the site and employs many band members.
The big work now is preloading the property and completing geotechnical services, Giesbrecht said.
Kwikwetlem Business Park represents the largest new addition to the industrial base in the Tri-Cities area. The local industrial vacancy rate is 1.7 per cent and less than 100,000 square feet of new space came to the market this year. Another 434,577 square feet is under construction, but the net absorption in the second quarter alone was north of 48,000 square feet.
The latest strata development in Port Coquitlam, by Conwest Group, will deliver 16 strata warehouse units with prices in the $325-per-square-foot range. The project is not yet at the marketing stage but has already received unsolicited offers.
First Nations have a history of industrial land development. The Tsawwassen First Nation (TFN) in Delta is developing the 300-acre Deltaport Logistics Centre, with 100 acres already leased. Phase 2 comprises the second phase of that project and its 200 acres represents the last large parcel of industrial land available in Metro Vancouver. TFN’s preference is to lease fully serviced parcels of 15 to 20 acres, a TFN spokesman said.
There are very few large parcels of industrial land and they are being quickly taken up. Metro Vancouver has seen 20 straight quarters of positive absorption, and new supply still struggles to meet demand, Colliers noted in its second-quarter report.