Vancouver’s urban office market warms up
Weekend Extra: Vancouver’s urban office market warms up by Bruce Constantineau was originally published in the Vancouver Sun on August 27, 2013.
City law firms seek fancy new digs in urban core
Call it the solicitors’ shuffle.
Whether it’s a trend or just coincidence, some of Vancouver’s biggest law firms have decided the time is right to ditch their old office space in favour of fancy new downtown digs.
Dentons (formerly Fraser Milner Casgrain) made its big move two years ago when it left the Grosvenor Building on West Georgia to move into state-of-the-art renovated space at PricewaterhouseCoopers Place at 250 Howe.
Bull Housser, which has spent 40 years in the Royal Centre on Georgia Street, will move into the new Telus Garden tower at Georgia and Richards in 2015.
McCarthy Tetrault will also change addresses that year when it leaves 777 Dunsmuir and takes residence in a new 25-storey office tower under construction at 745 Thurlow.
Other firms are said to be kicking the tires at other potential new downtown locations now, but don’t want to speak about it on the record.
So what’s going on?
Bull Housser managing partner Simon Margolis said his firm began exploring its office options two years ago and even considered staying put.
But it eventually embraced the concept of moving into the new green Leadership in Energy and Environmental Design Platinum tower and sharing the building with an innovative national company like Telus. Amazon, with a Vancouver office in Yaletown, is also believed to be considering leasing a large chunk of space in Telus Garden.
“We like to think of ourselves as being an innovative, young, energetic firm and the opportunity to move into a building like Telus Garden was just too good to turn down,” Margolis said. “It should help with our branding because it says a lot about who we are as a firm.
“It’s not lost on us that we’ll be in a building with a major corporation of this province. We like the nature of the building and what it represents about forward thinking and design.”
Bull Housser will occupy about 55,000 square feet in Telus Garden on 2½ floors, about the same space it now occupies on four floors. Margolis said being less spread out will encourage more staff “interconnectivity” while a new, more open office design will accentuate “light and brightness and air and freshness.”
He said a long-time Bull Housser partner told him the firm’s move to Royal Centre 40 years ago was “transformative” for the organization and that’s the sense they have about this relocation.
“It will be very renewing and refreshing for the people in our firm,” Margolis said.
Dentons (formerly Fraser Milner Casgrain) partner John Sandrelli said law firms need to provide the best working environment possible now because the competition for talent is intense. His firm and landlord Cadillac Fairview shared the $8-million cost of renovating its new office space before it moved in.
“You have to provide a working environment that people will enjoy because it can be a differentiator,” Sandrelli said. “As law firms compete more for talent, they need to up their game in terms of their work environment.”
He said the firm was fortunate to negotiate its lease in 2009, shortly after the global financial crisis, because there was an excess of space available so it could negotiate favourable terms and conditions for a lease that could last 22 years.
But conditions have since shifted more in the favour of landlords, with a downtown office space vacancy rate of just four per cent and lease rates that have risen steadily to a current peak of around $40 a square foot. So a tenant that wants 50,000 square feet of space in a top-quality building now could pay about $2 million a year in rent.
Regus Group vice-president Wes Lenci, whose company rents office space to clients, said downtown Vancouver is clearly a “landlord-driven” market right now. Regus will lease two floors of the new 35-storey building under construction now at 1021 West Hastings in 2015.
“The Vancouver market is strong and the availability of quality space is quite low,” Lenci said. “That’s why there are new buildings going up.”
Colliers International senior vice-president Colin Scarlett said despite the landlords’ market conditions, it can still be a challenge for developers to find major anchor tenants for their new office towers.
“Vancouver isn’t a head-office city; it’s a branch-office town and the average tenant size here is around 2,500 square feet,” he said. “So it can be really hard to find large tenants to pre-lease space in big projects.”
Scarlett said the “small handful” of Vancouver organizations that can lease large amounts of downtown space include banks, mining companies, professional services firms, high-tech companies and governments.
“Vancouver doesn’t have a lot of big corporations that can think five years ahead but if you want to move to a new building, you start the process five years before your lease expires,” he said. “It takes time to choose a project, negotiate a lease and then wait for the building to be built.”
Scarlett said landlords often entice major tenants by paying about a third of their total cost for office improvements, new furniture, moving costs and other expenses.
That landlords’ share could range from about $2 million to $3 million on a 50,000-square-foot space.
He said many prospective downtown office tenants now are companies that used to prefer the suburbs.
“Ten years ago, Amazon wouldn’t even have a sniff in downtown Vancouver but today, they won’t sniff in the suburbs,” Scarlett said.
“Their staff live and work in the city or use transit and they really want an urban environment.”
PCI Group president Andrew Grant, whose company is building the Marine Gateway residential-retail-office project near the Marine Drive Canada Line station, said access to transit and working in environmentally friendly buildings are hugely important considerations for office tenants.
“You don’t see it resonating with residential buyers or retail tenants but many office tenants insist on it,” he said. “They have to be near transit and they have to be in a LEED Gold building.”
Grant said PCI normally wants a 10-year or 15-year commitment from office tenants and inducements can include paying a portion of leasehold improvements or creating special signage or even giving naming rights to the building for a company that wants the exposure.
Scarlett said naming rights were a big factor in accounting firm MNP’s decision to move into the new building under construction at 1021 West Hastings, as it will be called the MNP Tower.
That tower — along with Telus Garden, 745 Thurlow and 280,000 square feet of space being revamped for office use in the old Sears store — represent the biggest office projects underway now in the downtown core.
But commercial realtors say rising lease rates and the strong demand for space have made several other downtown sites appealing for future office development — including the corners of Granville and Pender, Howe and Pender, Howe and Nelson and a parkade at Cordova and Granville.
Premise Properties president Avtar Bains hopes they don’t all get built at the same time.
“That would cause total and complete and utter turmoil in the downtown marketplace,” he said.
“Hopefully we’ve learned from some of the American markets that have run into serious trouble by overbuilding.”
While downtown Vancouver’s office vacancy rate sits at four per cent, a recent Colliers report noted Phoenix has a vacancy rate of 21.8 per cent while the vacancy rate in Dallas sits at 23.8 per cent.