High levels of demand for office space in Metro Vancouver, and the high prices resulting from that, have allowed developers in the region to try a variety of things that they may not be able to elsewhere, and one of those things is providing office space as ownable strata units rather than on a leased tenure.
Amidst a period of strong demand and low supply, several notable developers opted to go the strata route in 2017 and 2018. Those included the Bosa Waterfront Centre by Bosa Development, as well as One Burrard Place by Reliance Properties, with the former selling at an average of $2,000 per sq. ft -- a price so high that it likely made other developers take notice.
There are benefits of strata office space, for both the end user and the developer.
Dan Jordan, a Vancouver-based Senior Vice President at Colliers, says that strata office space allows stable businesses -- such as those in the medical and legal field -- to build wealth and equity. Owning the space also gives users some control, which can become particularly appealing in a tight leasing market.
For developers, Jordan says that some may consider going strata if the land price is really high, in order to make their numbers work -- similar to how residential developers may switch from rental to strata.
"Some are motivated to maintain ownership [for themselves]," he says, "but others may just do the sales themselves rather than complete [construction] and then sell."
Either way, it's possible that the strata office space phenomenon has already peaked, at least according to a regional office building inventory report conducted by Metro Vancouver -- the federation of 21 municipalities, one electoral area, and one treaty First Nation located in the region of the same name.
The report is set to be presented to the Metro Vancouver Regional Planning Committee on Friday, May 12, and is the product of numerous interviews with industry stakeholders such as commercial brokerage firms, developers, and municipal governments.
"There was a question by some interviewees about the depth of demand for this market," the report, conducted by Senior Planner Eric Aderneck, concluded. "With the increase in interest and mortgage rates, it is expected that strata development and sales will diminish."
The report found that most office developments in Metro Vancouver are still provided on a leasing basis, and some of that is due to factors imposed on developers -- intentionally or unintentionally -- by municipal governments.
One example is the cost of development in the City of Vancouver, where development projects that require rezoning may result in higher costs if it is a strata tenure rather than a lease tenure, as a result of the City's Community Amenity Contributions. The report also points to the City of Richmond's concern that strata office space is built less for occupants and more for investors (who oftentimes then lease out the space).
Forum, located on 750 SW Marine Drive in South Vancouver. (Chard)
Nonetheless, projects with strata office space still exist -- at least for now. These days, however, they often occur in low-rise stacked industrial projects that mix office space with light industrial space, rather than a traditional high-rise office tower like the Bosa Waterfront Centre. Examples include Marine Landing by Wesbild, Forum by Chard, Riverworks by Conwest, and Archetype by QuadReal and Hungerford.
The Metro Vancouver report also notes that strata office space may now be moving out to the suburbs and "small markets where investors are active, or businesses want to own their accommodations."
READ: Bosa Waterfront, Where Office Space Sold At Record Prices, Now Complete
It also notes that strata office space in the suburbs are often occurring as part of mixed-use buildings, and various commercial listings confirm this, such as strata office space within the commercial podium of the Sun Tower by Belford Properties and Gold House by Rize Alliance -- one block away from each other in Burnaby near Metrotown Station.
Regardless of the location, those interviewed for the report note that the Bosa Waterfront Centre had everything line up perfectly and that developers of future strata office projects should not expect to achieve the $2,000 high-water mark. Look no further than a unit for sale within the aforementioned One Burrard Place in Downtown Vancouver, which is currently listed at $1,566 per sq. ft.
