Chip Wilson, former CEO of Lululemon, has reportedly acquired 1770 West 7th Avenue, a 5-storey, 75,000 SF office building located at Burrard and West 7th. The building, built in 1985, was sold for $32,625,000, or $430 per SF.

Bentall Kennedy has submitted a rezoning application for the site it owns at 1090 West Pender Street, currently an 11-storey office building.

Bentall acquired the property from West Pender Property Group in 2011 for $19,500,000 as part of a transaction that included a trade of 50% interest in 1050 West Pender Street.

The plan calls for a new 31-storey office building with:

• 564,000 SF of office space with retail and service uses on the lower two levels;
• 486 underground parking spaces;
• a total density of 18.0 FSR
• a total height of 403 ft. (about the same height as Bentall 3)

Link to the full rezoning application: http://former.vancouver.ca/commsvcs/planning/rezoning/applications/1090wpender/index.htm

It’s been a great 5 years for owners of the City’s older office buildings. Amid near-record low vacancy and high rents, B and C Class buildings have enjoyed all-time high valuations in 2013, particularly those located in ‘hip’ areas like Yaletown and Gastown. This trend has been exhibited in a number of recent sales, including: 576 Seymour Street, 1445 West Georgia Street and 1112 West Pender, all of which sold at cap rates roughly half of what they would have been just 7 or 8 years ago. Are owners of older office buildings looking to cash out on gains? Well, not really….yet. While many would likely agree that there are risks to the outlook for office leasing fundamentals going forward, vacancy and rental rates are only beginning to feel negative pressure. Here’s a look at some trends in the leasing market:

B Class buildings in particular are expected to feel pressure as the upward movement of tenants throughout the market is fuelled by the new construction of AAA Class buildings downtown.

Compare that with the run-up in values over the past ten years:

Ten years ago, half-empty older downtown buildings often sold for as low as $100 per SF, and now they are trading often as high as new product in other markets. Cap rate compression in this subset has also reflected the market at large.

As leasing fundamentals are expected to show a more pronounced weakening around the same time that interest rates finally show upward movement (ie. early 2015), expect to see more activity in this subset of the commercial real estate market, with more sellers looking to cash out on existing tenancies, as well as renewed pressure for conversion to hotel or residential.

Conversion in particular is a much more difficult strategy than it was a decade ago, when the loss of older commercial space prompted the City of Vancouver to initiate a moratorium on the conversion or demolition of commercial space in core areas (the Metro Core Jobs Study).

IMG_0059, a photo by blazzzinred [vancityhotshots] on Flickr.

New Nordstrom building under construction.