Fears of a Metro Vancouver office market slowdown in 2015 appear to be unfounded.

True, until 2014’s third quarter (according to Colliers International), vacancies were rising, absorption of space was negative and landlords’ need to make concessions to secure tenants was a hot topic. But entering 2015, the market is in good shape.

The post-Olympic slump that was forecast was inconsequential, and even in the aftermath of the financial crisis, Bentall 5 sold twice over at benchmark prices.

“We didn’t see anything, even though there was a financial meltdown,” said Mark Chambers, executive vice-president of Jones Lang LaSalle (JLL) in Vancouver. “I tend to be, ‘Boy, this went well.’”

Now, with four new buildings and a handful of smaller projects set to add 1.8 million square feet to the market this year – with commitments promising 90% occupancy on opening – Chambers said there’s little cause for pessimism.

“Historically, every time we’ve seen a construction boom we’ve seen a few really good years of positive absorption. So is this cycle going to be any different? I don’t think so.”

Given the time since the last new tower completed downtown, Chambers added that the buildings have market dynamics on their side. They aren’t entering a falling market, but one where there’s pent-up demand for new space and sufficient confidence among tenants to lease it.

“There’s demand for better product,” he said. “People didn’t have that breathing room. I think you’ve got growth in the economy now – you’ve got growth in the digital media, technology area.”

The real tension in the market appears to be between the core and a periphery increasingly defined by transit lines.

The Broadway corridor, a market once defined as the two-block-wide swath running along Broadway between Cambie and Burrard streets, now encompasses everything outside downtown, in the opinion of many brokerages.

Avison Young and JLL both include Marine Gateway, at the south foot of Cambie Street, within the area, as well as Bentall Kennedy LP’s Broadway Tech Centre at the city’s eastern edge. Both developments sit adjacent to rapid transit stations, infrastructure that has redefined how many tenants view the region and its relation to the core.

Transit lines are like the spokes of a wheel whose hub is downtown, Bentall Kennedy vice-president Jeff Rank said. Transit connections let companies stay close to the core without limiting them to conventional space.

But he’s skeptical as to whether non-core locations are rising to dominance or simply complementing core locations. His reading of the numbers – from the standpoint of a company with projects in both segments of the market – is that location remains key.

“We focus an awful lot on public transit and SkyTrain as the be-all and end-all of future office space demand,” Rank said. “But I think we do that without fully recognizing that that’s one variable in usually at least a half-dozen, if not a dozen, other variables.”

JLL’s regular Rapid Transit Index underscores that projects within 500 metres of a transit station typically enjoy higher rents and lower vacancies – but exceptions exist. The most recent edition notes that Metrotower III in Burnaby and Anvil Centre in New Westminster both completed with just 17.8% leased.

Rank feels Broadway Tech Centre has maintained its appeal because of its key location between the Burnaby market – where it was once classified – and the Vancouver core.

Downtown remains appealing because it offers an established package of amenities that’s still evolving in many other markets.

“It ticks every box,” Rank said. “Now that we’ve added some new supply and given people some opportunities, I think downtown stands to continue to perform well.”

Savvy strategy

Vancouver may be all about densification, but Calgary-based Big Rock Brewery Inc. is showing what can be done with the city’s industrial space. While flexible zoning has helped make the combination possible, drawing a half-dozen craft brewers to the industrial heart of Mount Pleasant, Big Rock is readying its own facility cognizant that it’s not the only game in town. The 20,000-square-foot facility at Alberta and West 3rd Avenue is a triple threat aimed squarely at local drinkers, with a pub, retail store and commercial brewery all in one building – and each element offering something different.

While it will kick off operations with a Northwest-style red ale, general manager JM Pelland said plans are in place to give each component a distinct flavour.

“By May, June, there’ll always be six to eight different draft beers available, split up between the restaurant and the retail area,” he said.

The facility has 30,000-litre tanks that will enable it to produce beer for broad distribution, while smaller tanks of 3,000 to 6,000 litres will allow small batches for on-site consumption. The retail outlet will also stock product from Big Rock’s Calgary plant.

“I’m quite confident in making it a cornerstone of this neighbourhood,” Pelland said. “It is a unique neighbourhood, and what a great way to capture a multi-faceted audience with a mixed-use building!”

Situated next to the Vancouver Police Department, the brewery receives daily visits from officers wondering when it’s opening.

Pelland expects to produce evidence of the brewery’s handiwork in April.

Housing and incomes

It’s become common of late for commentaries on housing affordability to note that rising home prices are less of an issue than stagnant incomes.

Condo marketer Bob Rennie has long suggested this, arguing that foreign buyers are not dependent on local incomes and should be factored out of discussions of affordability.

But that doesn’t prevent high-level data from grabbing headlines; to wit, the flutter of excitement as the Real Estate Board of Greater Vancouver’s benchmark pricing for detached homes crossed the million-dollar mark last fall. That’s indisputably beyond what the median family income in metropolitan Vancouver – which Statistics Canada pegs at below $65,000 a year – can afford.

RBC Economics figures indicate the qualifying income for a standard condo – the most affordable housing type in the region – has averaged approximately $76,000 since mid-2009.

The good news, however, is that qualifying incomes have typically been within $1,500 of that average in recent years. In fact, RBC reports that a condo purchase requires just 39.9% of monthly household income today, versus more than 47% four years ago.

It’s the single-family buyers that have been hit hardest by rising home prices and the affordability crunch. RBC data shows that households now require $44,000 more in annual income to qualify for a simple bungalow than they did in spring 2009 – a gap that local incomes simply can’t bridge. •

The area, on the northern border of East and West Side Vancouver, has long been known for its inexpensive and low-rise industrial building

Last year, however, the City of Vancouver changed the light industrial definition in the area to allow the mixing of office space with industrial use. Zoning allows three square feet of commercial space to be erected for every square foot of land occupied.

Since the change was implemented, Mount Pleasant industrial land prices have hit the highest level in all of Metro Vancouver, at $384 per square foot, up about 34 per cent from 2007.

Some recent sales are already well above the average: one buyer paid $500 per square foot for an old one-storey industrial building on West 3rd Avenue in Mount Pleasant, a survey from Avison Young reveals. Another buyer paid $3.1 million for less than 7,500 square feet of industrial space in the 300 block of West 6th Avenue.

The density change has transformed what would typically be considered industrial transactions into land deals, according to Avison Young, which has been tracking action in the area.

“The higher pricing has essentially rendered retaining the existing structures as an inefficient use,” the report stated.

Growing demand for Mount Pleasant property has resulted in tech firms and other so-called light industrial users competing with developers and private investors trying to acquire property, the commercial agency noted. “This activity and subsequent pricing has skewed the overall value of Vancouver industrial real estate transactions,” Avison Young said.