Local opportunities
One of the opportunities touted to potential buyers of Royal Centre at 1055 West Georgia Street was the opportunity to increase the gross rentable area by applying a different measurement standard to the structure.
Brookfield Office Properties, which formerly owned and managed the complex, had initiated a process of remeasuring the property prior to its recent sale to Forgestone Capital Management LP, representative of German investor Klaus-Michael Kuehne.
Royal Centre was originally measured according to the 1980 standard of the Building Owners and Managers Association (BOMA) – the one governing most buildings in the region. Brookfield initiated a shift to the 1996 measurement standard, which provides for a 4% increase in gross rentable area.
The newer standard allows a landlord to attribute a larger amount of space to tenants than might appear at first glance. While the building remains the same, the leaseable area is larger on paper and the cash flow the building generates is more attractive – influencing what buyers are willing to pay.
However, it’s tough to make the change mid-stream – especially if other buildings in the market measure space so that tenants pay less overall for space of equal size.
As David Martin, a partner with law firm Fasken Martineau DuMoulin LLP, noted as part of a panel the Royal Institution of Chartered Surveyors convened last fall to discuss building measurement standards, “A tenant’s not going to let you change a standard that’s going to make them pay more rent.” But spreading the negotiated rent over a greater rentable area mid-tenancy isn’t an attractive option either, because it reduces the apparent cash flow per square foot, something anathema to most landlords.
Hence, the gradual, ongoing shift at Royal Centre, which will continue as Warrington PCI, a subsidiary of PCI Group that manages six million square feet of real estate across B.C., takes the reins from Brookfield.
Andrew Grant, president of PCI Group, said he’s looking forward to “some exciting changes … very positive changes” at Royal Centre in the months ahead.
Rental demand
Vancouver city staff last week confirmed long-standing reports in this column and elsewhere that all signs point to a minimal number of vacant housing units in the city; certainly, no more than in many other major cities – even if the numbers are concentrated in some neighbourhoods more than others. The findings came on the heels of an RBC Economics report noting that apartments remain “the only realistic option for first-time buyers” as single-detached homes become further entrenched as “‘luxury’ forms of housing.”
Be that as it may, the residential market in Vancouver is a key issue for commercial real estate, according to panellists at the recent meeting of commercial real estate association NAIOP.
A significant softening of the residential market could signal tough times in Metro Vancouver, said Matt Walker, a principal with Avison Young specializing in office sales and leasing.
That faith in the market’s strength was echoed by Bentall Kennedy LP vice-president Jeff Lim, who said high housing costs made it tough for anyone, not just first-time buyers, to buy a house – and that itself was the challenge facing the local economy.
Some tech companies elsewhere have invested in housing for employees, an idea that sources say appeals to Hootsuite principal Ryan Holmes, who partnered with Westbank Projects Corp. principal Ian Gillespie on a $40.5 million purchase of a block in Mount Pleasant. The plans are for office space, but with a crunch on housing, could rental come into play?
It’s what tech workers want, Gavin Reynolds, senior vice-president with Jones Lang LaSalle, told NAIOP. Without cars or private club memberships, they’ve got the cash to spend on rent for choice digs.
“These are people who in many cases are looking to rent, because they’re coming from other cities,” he said. “If we don’t have more rental stock that’s reasonably affordable, I think it’s going to start forcing a lot of companies to really think about setting up a presence here.” •
