The week’s top stories cover speculative building in both the commercial and residential sectors across the Lower Mainland, as well as modular housing used to combat homelessness and housing unaffordability in Vancouver. Speculative building is making news in the downtown office sector, while modular housing projects are picking up steam in areas where housing prices are stratospheric and the rental vacancy is tight to nil.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
While the February 13 B.C. Throne speech hinted that attacking speculation is part of the answer to reducing housing costs in Metro Vancouver, developers say the reverse is true.
In the past, speculative developers would bring new condos to the market in the hope of selling them, and lower prices would result from the competition and increased supply, they note.
But banks are so risk-averse today that they demand that any new condominium project has 50% to 60% of the units pre-sold before they will finance the project, according to Jason Turcotte, vice-president of development at Cressey Development Group, which will complete from 600 to 800 multi-family units this year in Metro Vancouver.
“Speculation has been removed from the market,” Turcotte said. “All that is being built is already pre-sold.”
If a speculator can’t get the pre-sales needed for financing, the project simply never starts, he explained.
“The big banks only want to deal with the major developers,” said Bryon Chard, CFO of Chard Development, a large Vancouver condo and rental developer. Chard said banks are demanding higher pre-sales than in the past and that rules are similar with all five of the big banks that Chard works with.
Chard is currently pre-selling a 58-unit condominium project on Main Street, Vancouver, where the last two pre-sale units are priced from $1.79 million.
“We not only have to hit that pre-sale level, they have to be personal buyers, not foreign buyers – well, maybe one or two – or corporate buyers. We can’t sell more than one suite to any individual,” Chard said. “Banks have a lot of control over our pre-sales.”
Chard conceded tougher pre-sale qualifications also benefit developers, who are facing soaring construction and land costs, plus municipal fees and delays that can layer costs on long after the pre-sales are finished.
“We have to make sure our [pre-sale] buyers close. We want it in their personal name so they will close,” Chard said, “We have a lot of risk in this game.”
Speculative office building is not slowing down, despite rising “with no tenants at this time.” Several office projects are going ahead due to increased demand and confidence from developers.
The 13-storey Offices at Burrard Place tower is not the only major office building underway in downtown Vancouver with no tenants but the speculation does not appear to faze developers.
Reliance Properties broke ground on the 146,000-square-foot building February 14 because, the company says, downtown office space can’t be built fast enough to meet the unprecedented demand.
“Space to meet the growth projections of large companies currently doesn’t exist in Vancouver. This is an era when developers like Reliance can build offices without any prelease agreements,” said Jon Stovell, Reliance president and CEO, after a groundbreaking ceremony on the Burrard Street site. Offices at Burrard Place, aimed at tech tenants, will complete in two years.
Vancouver’s office vacancy is the second tightest in North America at 5.2 per cent, with rents increasing as much as 20 per cent in the past year and still accelerating, according to Colliers International.
“Large companies have an extremely limited number of options. An average tenant in the downtown core looks for approximately 5,000 to 6,000 square feet of office space, but today’s demand is driven by tenants looking for multiple floors, with some needing as much as 150,000 square feet,” said Maury Dubuque, managing director of Colliers Vancouver, which is handling leasing on the new Burrard tower.
Recently, tech giant Amazon leased 147,000 square feet to take all of the space in Oxford Properties’ new nine-storey office tower on Dunsmuir Street that won’t open until late next year.
But, according to a recent office market study by Avison Young, other office developers are ready to pull the trigger despite having “no tenants at this time.”
Those queuing for the next wave of downtown office development include Westbank Corp. and Allied Real Estate Investment Trust with a 24-storey, 353,000-square-foot tower on West Georgia Street; and PCI Group and Greystone Developments that are preparing to build a 25-storey office building on West Hastings by 2020.
Uptown Property Group, GWL Realty Advisors and Low Tide Properties together have a total of 563,000 square feet of speculative office space in three towers, all scheduled to open within the next two to three years.
Bosa Development’s 30-floor Waterfront Centre won’t complete until 2021 at the north end of Granville Street, but half its 355,000 square feet of office space has already been sold at a record-snapping $2,000 per square foot.
The second phase of Reliance Properties and Jim Pattison Developments’ speculative project, Burrard Place development broke ground February 14, BIV reports.
“Two Burrard Place will be mid-block on Hornby Street and it has already been rezoned and we’re now applying for a development permit,” Reliance Properties CEO Jon Stovell told Business in Vancouver.
The fourth phase of Burrard Place, Three Burrard Place, is different from the others in that Reliance Properties solely owns the site whereas the other parts of the development are jointly owned by Reliance with the Jim Pattison Developments branch of the Jim Pattison Group.
The entire site, however, is being marketed and branded as Burrard Place.
The Three Burrard Place site also stands apart from the others in that it is also the only part of the development for which the site has not been cleared.
A decades-old 7’11 store at the corner of Hornby and Davie streets will have to eventually close. So will the vitamin-seller Popeye's, Junior's Barbershop, the kickboxing studio District Warrier and a brand new Cannabis Culture outlet, which is on a short-term lease. All of those businesses operate on Davie Street between Hornby Street and a lane and are on land that is slated to house Three Burrard Place. Stovell would not set a clear timeline for evictions.
He said that his company is in “early rezoning” discussions with the city to allow for the structure.
“Three Burrard Place will be a micro-loft rental building,” Stovell said. “That’s different from the other two towers, which are mixed use but mostly condos.”
Modular housing has been gaining ground not only as a viable option to end homelessness, but also as a solution to multiple issues surrounding affordability, BIV reports.
We are seeing growth and opportunities for affordable housing as that is at the front of the news right now in most urban centres within British Columbia,” said Craig Mitchell, director of innovative solutions at Metric Modular.
The company, previously known as Britco, is one of North America’s largest modular-housing companies.
Metric Modular, No. 32 on Business in Vancouver’s Top 100 Manufacturers in Metro Vancouver list, was sold earlier this year, and the company split its business into two.
Leaving behind the rental component of the company, Metric focuses solely on manufacturing multi-family modular units and other commercial modular products like education facilities and hospitality venues.
“Our buildings are built at higher standards than site-built construction,” Mitchell said. “It’s the same thing as buying an Audi out of a manufacturing plant as opposed to someone building an Audi in their garage.”
There are four modular-housing projects in Vancouver. An upcoming project has been proposed for the parking lot in the 500-block of West 2nd Avenue off Cambie Street, and a pilot project has been operating at Terminal Avenue and Main Street for almost a year.
According to Mitchell, the affordability dilemma has put Metric Modular on the map, but the potential of modular housing is far greater than what’s been explored. While modular housing is a viable option to help combat homelessness, being closely associated with the issue has also been something of a thorn in Metric’s side.
“One of our main challenges is typically related to things such as perception,” Mitchell said. “We have a perception in the marketplace as being trailer builders versus high-quality home builders.
“Something from a manufacturing standpoint that people are now just getting their heads wrapped around is that this is a better way to build. Building things off-site results in timelines that are 30% to 40% faster than site-built construction, and from a production line standard, the quality in a production line is going to be far higher than something built out in the field.”
The company owns two production facilities, one in Agassiz and one in Penticton, both with more than 100,000 square feet of manufacturing capability. Metric’s headquarters are in Langley, and the company employs more than 200 people.
Mitchell sees huge opportunities in a number of different areas such as the construction of modular hotels. Additionally, the company has started to focus on passive housing, which is built to rigorous energy efficiency standards. Because they use less energy, passive homes don’t need conventional heating and air conditioning.
“There are a lot of changes in building codes, which means higher-performance buildings are expected,” he said. “Building in a manufacturing facility makes it easier to obtain the standards required under performance building.”
Architect Michael Geller, president of Geller Group, said modular housing is an underused form of construction.
“Almost every day now, I hear about some new initiative in the world to build not just single-family houses but highrises using modular housing.”
Geller first suggested expanding the use of modular housing 10 years ago when he ran for city council, but he has been frustrated by what he called the City of Vancouver’s sluggish adoption of the idea.
“While temporary or relocated modular housing is being used for the homeless, there is no reason it can’t be used for housing young people who are not put off of the idea that not only might you move but the housing might move from one vacant land to the other.”