Business in Vancouver October 9-15, 2007; issue 937
Real estate roundup: Peter Mitham
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Tight office markets
One of the great things about travelling is that it gives us a new perspective on where we’re from. A trip to Latvia last week found me walking around Riga, one of the old merchant capitals of the Baltic region. These days, judging by a survey of the office market by Colliers International, things are still booming. There’s nothing to spare in terms of A-class office space, and a vacancy rate of just 6% on a B-class inventory of 1.5 million square feet.
And Vancouver thought things were tight.
The latest stats from Cushman & Wakefield LePage indicate vacancies of 2.9% in both triple-A and A-class space in Vancouver, with an average downtown vacancy rate across all classes of 3.9%. That’s slightly better than last quarter when downtown vacancies were averaging 3.2%.
Region-wide, Cushman & Wakefield LePage peg office vacancies at 5.65%%.
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Space for a premium
Despite the low vacancies in Riga, space remains relatively affordable compared with Vancouver.
While word on the street has downtown Vancouver lease deals approaching $55 a square foot, top-tier space in Riga is running at just $2.93 a square foot. Poorer quality space is running at slightly more than half that.
CB Richard Ellis reports that asking rates downtown were averaging $20.74 per square foot downtown in the third quarter, with operating costs and other charges adding an average of $12.58 to the cost for a total of $33.32 a square foot.
Throw in parking charges (which can run as high as $400 monthly, according to local brokerages), and Colliers’ analysis says it’s small wonder more companies are looking at the suburbs when scouting new locations.
Major international companies wishing to locate in Riga face the same challenges, Colliers notes, with virtually no parking space available for office dwellers in that city’s downtown core.
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Industrial market
I don’t make a point of hanging around Baltic industrial parks on vacation, so I’ll have to take Colliers’ word for it that the inventory of warehousing facilities in the Baltic port is growing steadily.
The economic expansion of the post-Soviet years has spurred the growth of logistics facilities. The inventory is set to max out at 2.9 million square feet in 2010.
The robust growth may sound like Vancouver, and true enough, a shortage of tradespeople has been cited as a factor in extending construction timelines.
But with CB Richard Ellis reporting more than 2.5 million square feet of new industrial construction on the go in Greater Vancouver and a further three million square feet planned, industrial tenants can look forward to new product coming on stream for the foreseeable future.
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Riga hotel expansion plans
One of the big surprises in Riga since my last visit seven years ago has been the hotel construction boom. Room rates at the Hotel Laine in central Riga, a small boutique property popular with business travellers, have moved up by half.
Across the city, however, new construction is bringing larger projects and major names into the city.
This recalls the promise of the names Shangri-La and Ritz-Carlton atop Vancouver’s tallest towers, but in Riga, the name signalling a new phase in development is Hyatt, which plans a 165-room property that’s scheduled to open in 2009.
With eight new properties set to open over the next three years in Riga, the city’s hotel occupancy rates will likely drop in the short-term from the current rate of 51.5% even as demand increases.
The same can’t be said for Vancouver, where strengthening occupancy levels are spurring a mini-boom in new and planned hotel construction. Tourism Vancouver forecasts the addition of 1,221 new rooms over the next four years, while Pannell Kerr Forster Consulting Inc. expects occupancy levels in the city to end the year at 73%, up from 72% last year and 64% in 2004.
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Striking deals
Whatever the outcome of the labour dispute between the city and its employees, at least one local broker isn’t taking any chances.
Colin Scarlett of Colliers International is including a clause in lease agreements for tenants unable to improve premises because they can’t obtain a permit for the work.
The clause extends lease start dates until the strike is resolved and tenants can get permits.
To date, Scarlett has inserted the clause in two lease agreements for tenants in the downtown core: an interior design company and an architecture and project management firm.
The use of such clauses is common whenever labour disputes last long enough to disrupt broader economic activity.
The lockout of Telus workers in 2005 resulted in similar measures for tenants requiring significant telecommunications work done prior to occupancy. •
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I've noticed it has been at that height for a couple of weeks now, so its probably topped off. 
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