Time flies when you're having a financial crisis, and Colliers International's first survey since 2007 about the factors driving office leasing shows that efficient space and employee retention have overtaken sustainability as key concerns.
Seven years ago, 90% of survey respondents identified green real estate as a priority for landlords and more than 60% of tenants were willing to pay a premium for environment-friendly space. Approximately 69% considered location “important” or “extremely important,” and 14% felt it was key.
The latest survey indicates that 71% of tenants wouldn't consider a location more than 10 to 15 minutes from transit, while 72% wanted to be in the “right” location – defined by Colliers as “proximity to vendors, competitors, interconnected companies and employees.”
By contrast, 21% deem environmental sustainability a critical consideration. Green, it would seem, has gone mainstream while companies still fight for talent.
“They're deeply concerned about the battle for talent and losing their employees,” said Sandy McNair, president of Altus InSite, of current tenant attitudes.
While office space may be cheaper outside the core, for example, most tenants will want to be where the action – business and social – is.
“Vancouver in particular has got probably the best street life and live-work-play ethos of any of Canada's cities, and so not surprisingly it's got the most likelihood of employers and employees being determined to stay downtown,” he said.
Most employers move no more than 10 kilometres, he said, and in a city like Vancouver where cycling and walking are popular, the range for change is even less.
Vancouver is in the midst of the greatest wave of downtown office construction since the early 1990s, but the 2.1 million square feet under construction represents a smidgen compared to development in the 1970s that added 5% to 10% a year to the regional office stock.
“It's not that scary,” McNair said, noting that net additions for the past 15 years have been in the 1% to 2% range. “We've had this little leap back up to a 5%, then 3.5%, and then back down to a 1% in 2016.”
However, new construction is needed.
The coming wave of completions will reduce the average age of A-class office space in the core to 26 years by 2017, according to CBRE Ltd., but it will still lag behind contemporary needs.
It's not just building systems that are aging.
Colliers International's latest tenant survey highlights ongoing demand for open-plan offices and flexible work environments geared to a mobile and dynamic workforce. McNair points to recent deals in Toronto by Telus, Sun Life Financial Inc. and other companies for just 100 to 120 square feet per person – down from 260 square feet a dozen years ago.
“The new buildings are being built to accommodate people that densely,” he said. “Most existing buildings won't get much below 150 square feet per person – that's as dense as you can populate them.”
The key constraints are stairwells.
“You can spend money to improve your electrical. You can spend money to improve the air conditioning and mechanical systems,” McNair said. “But the stairwell width? It's not changing.”
RealNet Canada Inc. reports that industrial property transactions accounted for 11.3% of all deals in the first quarter of 2014. A lack of available product is a common reason for the lack of deal activity relative to other sectors.
In lieu of buying, many build.
The latest instance is Oxford Properties Group, which plans to develop an additional 5.1 million square feet of industrial space across Canada by 2017.
Among the projects is the redevelopment of the former Norampac mill site in Burnaby, which Oxford acquired in 2011. Being located north of the Fraser and close to the region's core, the site is ideal for a distribution hub.
Kevan Gorrie, then vice-president, industrial, for Oxford (now president and co-CEO of Pure Industrial Real Estate Trust), told commercial real estate association NAIOP shortly after the acquisition that the property would let Oxford give the market whatever it needed.
“The way it's oriented, the way it's laid out, gives us design flexibility so we can respond to emerging trends in the market,” he said.
