Retailers could be forgiven for not wanting to lease space in downtown Vancouver office buildings. The city’s downtown office vacancy rate sits at a 19-year high and is above 10 per cent for the first time since 2004, according to Avison Young.
That empty office space translates into fewer potential nearby customers for retailers.
Office employees working in space that is leased tend to still work from home at least part time.
Add this to a steady stream of headlines that highlight property crime and violence downtown – including high-profile stabbing deaths – and there is enough rationale to give a shrewd entrepreneur pause.
Industry insiders, however, say demand for retail space in office buildings remains high, despite industry headwinds.
“While COVID-19 mandates had an impact on our office retailers’ performance, they have since bounced back strong,” says Oxford Properties Group director and general manager Jess Hague about his company’s downtown Vancouver properties.
“Our retail portfolio within our [downtown Vancouver] office assets is currently 92 per cent leased, and we expect to be 100 per cent leased by May.”
He says his company’s properties are patrolled by security teams and have not had any major security events in years.
“Every deal is unique, especially in retail, so it’s difficult to generalize about incentives [to encourage retailers to sign lease agreements],” he says.
Brokers and researchers similarly stress that downtown Vancouver’s retail sector in office buildings is robust.
“Sometimes spaces are vacant but they have been leased,” Marcus & Millichap senior vice-president Martin Moriarty tells BIV.
He explains that many spaces are either waiting for new tenants to leave existing locations, for tenants to do renovations or for landlords to do redevelopments.
“Office-driven retail spaces have probably not been as strong as more generic retail markets, but it has not lagged far behind,” he says.
“If you want to open a coffee shop or a restaurant and you’re looking to pick off a space in an office building, you won’t find many options.”
CBRE senior vice-president Adrian Beruschi tells BIV that competition for space is sufficient to keep landlords from buckling on lease rates and adding lucrative incentives.
“There’s very, very little retail vacancy in the central business district right now in the base, or the ground floors, of office buildings,” he says.
“I don’t think there’s been a substantial difference in either lease rates or incentives for retailers.”
He, Moriarty and GWL Realty Advisors vice-president Wendy Waters say that landlords tend to want specific kinds of retailers in their buildings because the right retail mix can help them sustain lease rates for office tenants.
That right retail mix usually means coffee shops and quick-service restaurants as well as fitness facilities.
It can also include full-service restaurants.
Moriarty, for example, last year helped negotiate a deal to put Glowbal Restaurant Group’s new higher-end Riley’s Fish and Steak in Cadillac Fairview’s Waterfront Centre building at 200 Burrard St.
“You need to have the right retail immediately nearby,” Waters says. “You could take advantage of being right next door to a fantastic complex, for example, where you wouldn’t have to do as much yourself, but you need to have the right retail in the building or in the immediate block.”
Her company developed the recently opened Vancouver Centre II building, and plans are afoot to lease a small space in the base of that building to a coffee-shop operator that already has a presence downtown, she said. The building also connects to a mall level that leads to the Canada Line, and a hallway where there are many fast-service restaurants.
The general-purpose retailer London Drugs and coffee giant Starbucks Corp. are one block away.
Having that retail, Waters says, helps landlords charge more for office space.
The biggest new office building set to open this year in downtown Vancouver is Quadreal Property Group’s Post development, bounded by West Georgia, Hamilton, Dunsmuir and Homer streets.
Technology giant Amazon.com Inc. has leased all 1,050,000 square feet of the Post’s office space.
Amazon is expected to start filling one of the project’s two towers by summer and the other one by the end of the year.
Global staff layoffs have spurred rumours that Amazon may sublease some of its space. Regardless, its presence will undoubtedly generate demand for retail and food-service businesses in that neighbourhood.
Quadreal selected B.C.’s fast-growing Joseph Richard Group, which owns dozens of restaurants and pubs, to oversee the Post’s 26,000-square-foot food hall.
“We’re operating it, but we will be partnering with a number of different operators,” Joseph Richard Group CEO Ryan Moreno told BIV last summer.
“We haven’t disclosed who that’s going to be.”
BIV caught up with Moreno in April and he said he was still not able to disclose names of the food hall’s tenants or an anticipated launch date.
Brazilian steakhouse chain Fogo de Chão says it plans to open its first Canadian location in a 7,800-square-foot space in the Post by spring 2024.
Fitness facility Evolve Strength is set to open a 35,000-square-foot gym in the complex.
Fitness facilities that are open to the public are prime tenants for office buildings that do not already have gyms that are designated for those who work in the buildings, brokers say.
The 230,000-square-foot Nordstrom Inc. space at Pacific Centre is arguably the largest soon-to-be empty retail space in an office building in downtown Vancouver.
Cadillac Fairview’s senior vice-president for Canadian retail, Tom Knoepfel, told BIV that many potential tenants have contacted him.
“We’ve had significant interest from multiple parties considering leasing all of the space, and a portion of the space,” he says.
“We’re confident that we’ll be able to put together a retail offering that the general public will once again be excited about.”
Cadillac Fairview does its leasing internally, without outside brokers, so Knoepfel is aware of all interested parties, he said.
Most parties that have expressed interest are retailers, although “there have been other groups as well,” he says.
Knoepfel anticipates that the site will remain a retail hub. The question is whether one tenant will take the entire space, or whether Cadillac Fairview will redevelop the inside space to accommodate “three to five” retailers that would have flagship stores, he says.
“Nothing’s decided, and realistically it’ll take a few months to formalize a plan,” he said in April.
This article was first published in BIV's 2023 edition of Office Space magazine.
