Space matters
There’s always a lot of glad-handing and networking at events as well attended as the Vancouver Real Estate Forum, which marked its 20th anniversary this year. Consequently, comments from Jeff Lim, vice-president, leasing, at Bentall Kennedy (Canada) LP, regarding downtown office leasing came across as excessively sober.
“I don’t think we’ve seen it this bad since 2009, 2010,” he said.
What’s bad about the market is the amount of sublease space available. While the availability rate for office space in the core sits at approximately 6.3% of inventory, adding in sublease space pushes that rate to 9.3% – enough to declare a mild tenant’s market.
Lim reassured his audience that the situation is “just a transitional, cyclical downsizing.”
Bart Corbett, senior vice-president with Cushman & Wakefield Ltd., concurred.
While landlords aren’t stretching to do deals, he reiterated his view (also voiced at NAIOP last fall) that new projects such as Credit Suisse’s ambitious tower at 475 Howe Street and Cadillac Fairview’s space under development at Pacific Centre may face challenges finding tenants.
Speaking to commercial real estate organization NAIOP last fall, Corbett remarked on the lack of demand for new space in the city – something he told forum participants didn’t appear to be changing despite the hopes being pinned on LNG development.
“I’m just not seeing any take-up on office in that sector,” he said. “It’s not part of our market, and I’m not sure it ever will be.”
Corbett said most oil and gas companies are opting to stick to traditional hubs such as Calgary, where more than seven million square feet are under construction, including 5.2 million downtown. Pre-leasing of the new downtown space sits at 61%, according to Avison Young, compared with approximately 51.5% of the 2.1 million square feet being developed in downtown Vancouver.
Drink up
Victoria has pledged to implement all recommendations from last fall’s liquor policy review, but following through on that promise could create issues in at least one area.
Speaking at a seminar addressing wine and liquor law in B.C. prior to last week’s Vancouver International Wine Festival, Bert Hick of Rising Tide Consultants Ltd. noted that the recommendation to let grocers sell alcohol has the potential to be disruptive.
Government has yet to define what a grocery store is – a bugbear during the review of 1987 when Hick was general manager of the BC Liquor Control and Licensing Branch – and even the most obvious grocers, such as Safeway, Whole Foods and Urban Fare, are frequently located within steps of existing licensed vendors.
“Will [government liquor] stores be able to relocate and set up a smaller store within a grocery store?” he asked, positing one scenario.
The business of private stores could also be jeopardized if grocery stores are allowed to carry liquor, because – like the government stores – they are located near retailers they aimed to complement, not compete with.
“That’s the challenge I think government’s got,” Hick said. “How do you get liquor into these grocery stores without upsetting the economic interests of those private-sector individuals who responded to the government’s call in 2002 to apply for a store [and] worked their way through the regulatory process?”
Regardless of the outcome, Hick’s comments indicated that there are significant real estate implications from what government decides.
Government stores may come into play, or the landlords or private licensees might have to accommodate tenants facing the stresses of greater competition.
REIT stuff
Second City Capital Partners, no stranger to this column, is preparing to spin six office complexes comprising a total of 16 buildings out of its initial fund. The properties will become the foundation of City Office REIT, which aims to go public on the New York Stock Exchange in April.
The properties are in Colorado, Florida, Idaho, Oregon and Pennsylvania.
The ambitious move reflects Second City’s confidence in secondary U.S. office markets, where commercial property values have yet to fully recover from the 2008 financial crisis. Some suburban markets remain 90% off their peak, making the investments Second City and the new REIT plan long-term opportunities.
The offering aims to raise US$100 million, with proceeds being channelled into acquisitions of between $20 million and $50 million, according to Jamie Farrar, managing director of Second City. Acquisitions will occur over the next three to five years.
Second City also plans a new fund that will target lower-quality office and multi-family assets. These investments will again be in southern and western U.S. markets it has favoured to date. •
