The wave of new office space breaking over downtown has triggered a lot of discussion regarding how landlords can make the most of older, lower-class space.
But in North Vancouver, C-class space is virtually non-existent, representing just 7.1% of office inventory, or less than 100,000 square feet. That’s less than any other Metro Vancouver municipality.
Without that cheaper alternative, many tenants are turning to strata office space – not only on the North Shore, but in other suburban markets, too.
“I always prefer to own an appreciating asset,” said Ken Screpnek, principal at Screpnek & Ho Chartered Accountants in North Vancouver. “Our lease had come up and I wasn’t really looking for new lease space; I was looking to own.”
While strata options weren’t plentiful, Screpnek wasn’t about to continue operating from the 30-year-old premises he was occupying in the Lower Lonsdale area.
He wanted to work closer to his family and be more accessible to clients. A 1,450-square-foot unit in Dollarton Business Park made sense.
“It was more preferable to me because I live on this side,” Screpnek said. “Clients are preferring this location as well because it’s easier if you’re coming from most of the [Greater Vancouver Regional District].”
It’s a common story, says Terry Thies, a principal with Avison Young who specializes in North Shore real estate and has seen steady demand for strata from owner-occupiers as well as investors as redevelopment changes the existing stock of commercial and light industrial properties.
“Many of these smaller owner-users that don’t have to be downtown would much rather be residing with their business, closer to their homes, closer to their recreation and closer to their family,” Thies said.
Strata units fill the gap as older leasehold properties are remade as mixed-use premises commanding higher rates.
“We are seeing C-class product being picked up as part of a general assembly,” he said. “A developer would pick up several C-quality buildings, demolish those buildings and then replace those with a new mixed-use type of development.”
An example is Polygon Realty Ltd.’s demolition of 100,000 square feet of C-class office space on West Esplanade for West Quay, a 215-unit residential project with 40,000 square feet of commercial space, including 15,000 for non-profit organizations. Residential and commercial units alike will be strata-titled.
While larger companies and those with fluctuating space needs prefer the flexible nature of leased premises, strata units are an option for smaller occupants and those with set space requirements.
Most strata deals are between 2,000 and 10,000 square feet, Thies said.
The phenomenon isn’t limited to North Vancouver, even though it has filled a particular niche here. New Westminster’s Brewery District and City Centre 1 in Surrey have been popular with professional and medical offices; Burnaby and Langley have also seen demand.
“It has certainly been a winning approach in the suburban communities,” Thies said. “New Westminster saw a real positive response to the strata-titled commercial real estate at the Brewery District. In the Metrotown area, we’re also seeing a positive reaction towards strata-titled product.”
While new premises may cost more, holding title to the property also lets owners pay themselves rather than a landlord. With North Vancouver strata office space averaging between $400 and $500 a square foot and mortgage rates continuing to plumb historical lows, the math pencils out for occupiers and investors alike.
North Shore lease rates are no less than $20 a square foot, even for the lowest-tier space, which makes buying an attractive proposition.
“The economics of it make sense … for a small investor to come in and purchase that small unit and then lease it out to another business,” Thies said. “You can borrow at, say, 3.5%; there’s a full 1% spread it’s possible to achieve.”
So long as interest rates remain low, and assemblies of older space continue to provide redevelopment opportunities, Thies expects strata units to be the alternative of choice for occupants. •
