Three projects to relieve downtown office crunch
Carla Wilson
Times Colonist
Thursday, January 24, 2008
Greater Victoria's office vacancy rate has reached its lowest level in 12 years but relief is in sight now that developers are planning to build more than 500,000 square feet of office space downtown.
If the three projects are completed, together they will almost double the amount of Class-A office space downtown and push the total to more than a million square feet.
The market for Class A downtown space is the region's tightest, at 0.1 per cent at the end of 2007, virtually the same as 2006's rate of zero, said Colliers International's office vacancy report for Greater Victoria, which released during a reception last night.
It has been nine years since a private sector office building went up downtown.
If 300,000 to 500,000 square-feet of new office space is built by 2010, the vacancy rate could move up to five per cent, Colliers said.
Rising construction costs, which have plagued all development sectors, have been a critical factor in the supply of office space.
"When you think about building an office, you have to have sufficient rental [income] to justify the construction costs, and our rentals are nowhere near that ... that's the problem. Our rentals have lagged behind the rest of the country," Colliers spokesman Robert Law said yesterday.
When the office rental market squeeze started in 2005, rates did not keep up, Law said. Unlike Vancouver or Toronto, where the private-sector represents a larger proportion of office renters, close to half the local office space is taken up by the provincial government, either as an owner or leasing space, and it has been reluctant to pay rates that would support new construction, he said.
The highest Class A gross rental rate here is $37 per square foot a year, lower than Vancouver at $50 and Calgary and Toronto at $64.
Law figures gross rents must move to at least $44 to $45 per square foot to make building an office project financially feasible.
Class A office space represents 596,748 square feet in eight buildings downtown, out of 4.7 million square feet of all types of office space in the city's core.
Regionally, there is more than eight million square feet of all various levels of office space in 208 buildings.
Last year, Greater Victoria's overall office vacancy rate decreased to 2.9 per cent from four per cent.
The downtown vacancy rate for all types of offices was 2.8 per cent at the end of 2007, similar to 2.9 per cent the previous year.
As tenants increasingly looked to Class B offices, the regional vacancy rate for that category slid from 4.2 per cent in 2006 to 2.7 per cent last year.
Class C vacancy rose, however, to 7.8 per cent in 2007, from 6.5 per cent in 2006, mainly because of tenants moving into Class B, Colliers said.
The only Class A office space added to the market last year was Upper Harbour Place Phase Two, at Bay Street and Tyee Road, the report said. New Class B space was added in three other projects, totalling 34,000 square feet.
Work will resume on the $160-million Radius project, stalled due to rising construction costs, in a couple of weeks, developer John Schucht, said yesterday. University Canada West is planning to move into the Blanshard Street and Caledonia Avenue mixed-use project, that includes Class A office space.
Talks have been held with B.C. Ferries but no agreement has been reached about that organization moving into a planned office development at 800 Yates St., said Mohan Jawl, of Jawl Development Corp.
He is hoping a public hearing for the proposed seven-storey office project will be scheduled for March. If all goes according to plan, excavation would start about June and the project would be complete in two years.
B.C. Ferries has leased the first three floors of another Jawl property at 3795 Carey Rd., also known as the Wang Building, and is expected to move in just over a month. The Jawls and another potential tenant are close to an agreement for the fourth and fifth levels of that building.
And now that the planned 15-storey Gateway Green office tower was approved at a December public hearing, ground could be broken by year's end, said Travis Lee, one of the developers.
Construction would take two years. "The economics are finally right," he said.
cjwilson@tc.canwest.com
© Times Colonist (Victoria) 2008
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