We Work expands
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.
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.
Just 43% expect strong rents and demand will grow in Burnaby, compared with 61% expecting growth in the Broadway submarket and 81% seeing growth downtown. This suggests less pressure and more opportunity for tenants outside the core, even as landlords enjoy better times downtown, where all the lights are bright.
A key element sure to figure in the year-ahead forecasts that analysts are preparing to unleash on a suspecting audience in the coming weeks is the effect of interest rate increases.
Bank of Canada rate increases since July led RBC Economics to warn of “growing upward pressure on home ownership costs in Vancouver.”
Avison Young likewise tipped a shift towards post-peak pricing in the multi-family investment market as financing becomes more expensive.
“Vendor pricing expectations will likely need to be reconsidered as the cost of capital slowly starts to rise,” it reported. “Pricing will respond accordingly moving forward into 2018.”
Similarly, a record-breaking $5.1 billion worth of investment sales across 109 transactions in the first half of the year likely marks the end of an era as cheap money becomes less so and other considerations come into play. While demand for assets remains strong, vendors need to adapt to keep deals happening.
“If vendors acknowledge the new realities facing purchasers, different expectations as to how deal timelines are structured will emerge,” Avison Young said. “It will be this shift in the mindset of vendors that will ultimately reflect the end of [the] era.” •