Tech invisibility
November 9’s opening of the Exchange at 475 Howe Street marked the end of the latest wave of office construction in the downtown core and set the stage for towers to come as Burrard Place, Vancouver Centre 2, and 320 Granville (among others) dig in. The new supply is much needed, observers say, despite the fact a third of the space in the Exchange has yet to lease. While developers Credit Suisse and Franz Gehriger’s SwissReal Group trumpeted – or was that alpenhorned? – the strength of Vancouver’s economy, the 33% vacancy rate contrasted sharply with early ambitions for the tower.
Speaking at the groundbreaking ceremony, Mayor Gregor Robertson expected tech companies would “be very visible in this new building.” Quizzed at the tower’s opening, he said tech companies represent 40% of downtown leasing demand but acknowledged that not every building benefits from them. The Exchange has just one tech tenant: Hyperwallet Systems Inc.
“We’ll see what happens with the rest of this building,” Robertson said. “We’re seeing incredible growth right now in technology, but it’s good to see space and opportunity for other industries as well.”
Tipped as creating 1,700 job spaces, the Exchange will host closer to 1,600 given that its single largest tenant is the 202-room Executive-branded Exchange Hotel.
Jones Lang LaSalle (JLL), which is handling leasing, said the remainder of the building nevertheless delivers a healthy volume of job space given the going allotment of 160 square feet per worker. JLL is optimistic the building’s completion will give it traction with prospective tenants.
“Being able to touch and feel the product is a game-changer,” said Mark Chambers, executive vice-president of JLL. “We anticipate the leasing progress to accelerate substantially.”
Capital preservation
Pre-sales at 320 Granville, the 30-storey office tower set to replace the parkade at Granville and Cordova in downtown Vancouver, prove there’s a cost to capital preservation.
Specifically, more than $2,100 a square foot if you want your capital to have a view.
This, according to George Wong, principal of Magnum Projects Ltd., who sold 150,000 square feet of commercial strata space in the project on behalf of Bosa Development Corp. on November 3-5.
Visiting the presentation centre in the run-up to the official start of sales, Mark Trepp, senior vice-president of Jones Lang LaSalle, said the activity was reminiscent of the city’s condo boom.
“It looked like the days of yore in the residential market where people were running around scrambling to put stickers on units,” he said at the Vancouver Real Estate Strategy and Leasing Conference on November 1.
While buyers of units at WorkSpaces in Wall Financial Corp.’s Strathcona Village project, now 75% sold, are entirely owner-users, Bosa said “approximately half” those at 320 Granville are investors. Purchases ranged from 598-square-foot units to full floors of 9,500 square feet, the latter letting owners demise space for tenants as they see fit.
But no one was asking what the potential rents or tenant improvement costs would be, Trepp said.
“They’re not looking at this from a return perspective. They’re looking it as a commodity,” he said. “It’s something they see as preservation of capital – they’re fairly convinced they’re not going to lose their money – and really, at this point, that’s all that really matters to them.”
A similar phenomenon occurred at Burrard Place, which Magnum sold almost entirely to investors. Wong believes cultural factors play a role in the interest, a point Colliers International made last year in noting the importance of foreign investors to strata office projects.
Comfortable with owning office space in their countries of origin, buyers, particularly from Asia, embrace it here.
Bosa intends to seek tenants for floors 19 through 30 of the tower, which is scheduled to be completed in 2021. •
