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VANCOUVER — Special to The Globe and Mail
Published Monday, Mar. 28, 2016 9:27PM EDT
Last updated Monday, Mar. 28, 2016 9:29PM EDT
The $240-million Credit Suisse/SwissReal tower in the heart of downtown Vancouver will be completed in less than a year, but so far, only one tenant has signed up to move in.
The tenant has committed for a 10th of the 370,000 square feet – leaving a state of emptiness that is unusual for an office skyscraper in this city. Even so, a huge shift in business tenancy is expected as the region experiences something it has not seen before: an office-tower building boom much of which is speculative construction rather than for specific committed tenants.
“This is kind of uncharted territory for Vancouver,” said Mehdi Shokri, a principal with the capital markets team at Avison Young. “But I don’t see a big disaster occurring.”
The Credit Suisse tower is only the most visible and furthest along of a second wave of new office towers planned for Vancouver and some key suburbs. A first cluster of towers – some two million square feet – was built downtown in the past three years.
Another 11 office developments are proposed within blocks of Credit Suisse’s Exchange tower at Howe and West Pender streets, even while the office-vacancy rate in the region continues to inch up as a result of the first wave of building.
But commercial brokers say the city is not about to be populated by ghost towers.
Mr. Shokri and others say they expect many of the new towers to start signing tenant leases as they get closer to completion. That is partly because companies in Vancouver, which do want to be in new, energy-efficient buildings, tend to operate on short timelines.
As well, he said, prices in the new buildings will likely come down in the next two years due to competition.
The landlords who will likely suffer as a result of the current boom are owners of older buildings, Mr. Shokri said. As well, new developments in the suburbs, which have already experienced higher vacancy rates in recent years, may have trouble as they compete with each other.
In Vancouver, the co-developer of the Credit Suisse tower is optimistic his building will start to fill as the completion date gets closer.
Franz Gehriger, the CEO of SwissReal Group who bought the original historic stock-exchange building in 2002 before partnering with Credit Suisse to develop it, said the main group interested in leasing Vancouver office space these days is the technology sector. Those companies make their decisions just a year before they need to move in.
And, he said, all signs indicate non-Canadian companies are looking for space here.
“Vancouver is on the world map now. We get a lot of calls from California and Seattle of companies that are considering coming here,” Mr. Gehriger said.
Some brokers say the building has had trouble signing tenants because of its unusual design. It is being attached to the existing heritage building, with the new tower starting on a narrow base next to it and then widening out above the older building.
That complicated design did slow construction somewhat, but Mr. Gehriger said “most issues are resolved now.”
He also just switched leasing agents, from CBRE to JLL, at the beginning of the new year, which has prompted local speculation about what is happening with the building.
JLL vice-president Mark Chambers said his company plans to roll out some new strategies for marketing the building, including sophisticated analytical tools that show companies how much they benefit financially by being in energy-efficient buildings that are better designed for their employees.
The Credit Suisse tower will be LEED Platinum, the highest rating on the energy-efficiency scale used for many buildings in North America.
Mr. Chambers, who also marketed the extra space in the recently occupied Telus head office on Georgia Street, said people have been predicting disaster for the Vancouver office market for several years, saying the region would never be able to absorb all the new offices being produced.
But the gloomy predictions turned out to be inaccurate, as new technology companies, notably Amazon, Sony, and Microsoft, arrived to lease big chunks of space.
“I don’t think we’ve reached a limit,” Mr. Chambers said. “We’ve become a global city.”
DERRICK PENNER, VANCOUVER SUN 03.24.2016
The real estate investment arm of Credit Suisse and Canadian partner Swiss Real Group Canada have hired JLL Canada to take over leasing of their $240 million Exchange Building office tower project in downtown Vancouver, the companies said Thursday.
To date, the developers have unveiled only one major tenant for the building at the corner of Howe and Pender streets, the Montreal-headquartered National Bank, which, in 2015, pre-leased 45,000 square feet of space in the 31-floor, 372,000-square-foot project.
However, Swiss Real CEO Franz Gehriger said the developers are unconcerned that more tenants have not signed on yet because they are starting to get more calls.
“We’ve really had a lot of interest in the last few weeks and months,” Gehriger said.
Gehriger said the developers were pleased with the job their previous leasing agent, CBRE, did in bringing in an initial anchor tenant, but opted to make a change when the leasing contract expired at the end of 2015.
JLL’s Mark Chambers didn’t mention the names of any potential tenants but “a little bit of paperwork fly back and forth between a few groups.”
“I’m a bit superstitious, I don’t like to get excited about it until we’ve got a deal firm, but we’re feeling positive,” said Chambers, an executive vice-president with JLL.
Chambers said leasing activity in new projects typically ramps up 12 to 18 months ahead of completion, which is where the Exchange is now, with a schedule to be complete in the early summer of 2017.
The Exchange, which launched construction in 2014, is unique in that it incorporates the redevelopment of an existing heritage building, the 11-storey neo-Gothic Old Stock Exchange building at 475 Howe St., which will be incorporated into an office tower that will cantilever over top of its roof from the adjoining lot and rise to 31-storeys.
The developers are billing it as Vancouver’s first LEED Platinum heritage-conversion office building.
And while Thursday’s announcement coincided with the announcement of a major shakeup at Credit Suisse’s investment-banking arm, Gehriger said that news has no impact on the Exchange project.
The Wall Street Journal, on Wednesday, reported that Credit Suisse was cutting 2, o00 jobs from its investment-banking operations and has taken almost $1 billion US in writedowns in its operations.
However, it is Credit Suisse Real Estate Asset Management, which Gehriger described as being backed by pension funds, that owns an 80-per-cent stake in the Exchange project.