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episode # 116

Vancouver Commercial Presale Opportunities with Matt Carlson

Commercial Real Estate has caught fire in Vancouver and the lack of supply has spurred on creative fixes that offer exciting investment opportunities. Matt Carlson, VP Colliers, joins Adam and Matt to discuss opportunities you don’t know about in the presale commercial space and the future industries that will shape Vancouver.

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Episode Summary


 

About Matt:

Matt is VP at Colliers, the largest commercial real estate company in Canada and in Vancouver. His area of focus is on leasing and selling office properties in Vancouver. Matt helps clients, mainly in the tech sector, who want to start, move, or grow their office find new space. This includes stratified offices, which are offices and commercial-use spaces within residential condo buildings.

On where he sees the future of the tech industry going in Vancouver:

It’s hard to say, but demand from businesses to be here is driven by many factors:

  • People and talent are exceptional and cheaper than in San Francisco or Los Angeles.
  • Government policy and tax credits here are favourable, especially in creative sectors like film.
  • The time zone is the same as in LA, San Francisco, and Seattle (which helps companies like Microsoft and Amazon).
  • Vancouver is a nice place to live.
  • The relative employment costs here (besides housing) compared to the US are inexpensive.

These factors look good now and the demand of companies to stay and grow could likely increase, but if the factors change it’s hard to say [what the future holds] in the long-term.

On the challenges tech companies face in setting up in Vancouver:

It’s hard to find space and get set up (for instance, Apple would not be able to find something today that compares to their space in California—it could take five years). Our talent is great, but we are not a huge city—there are not enough people now but if more businesses come, more people will come. Right now, people need to be brought in if more than a few staff are needed. Pricy housing plays into this: anecdotally, people make comments [about affordability] but it all depends on the person and the role. Software developers, for instance, make around $150,000-200,000 or more, so they can afford it. The commute is a factor as well: there are those who will trade space for a short walk, and vice versa.

On if he’s excited about the city and opportunities for young people:

Absolutely. The city is growing. Big US companies like Amazon, Microsoft, and Salesforce have plans to employ thousands that weren’t here 10-15 years ago. Matt imagines they’re here for the long-term. Vancouver has reached a new level: a bigger city with better opportunities.

On the Vancouver Sun article Demand for strata office space outstrips supply in Vancouver and what strata office space is:

Strata office space is the same as a condo building (though typically smaller, like a boutique building you would see in Gastown or Yaletown). It is comprised of commercial, retail, or light manufacturing offices (with some having residential), all for sale and coexisting with other businesses that, together, form a strata. The units are more customizable than residential in terms of their size and design. This is nothing new, but it was more common 10-30 years ago and is now coming back mostly for small industrial and retail with residential. Small to mid-sized businesses want to own in well-managed buildings with likeminded people. So, the trend now is commercial and other developers building these for them. It is the flipside of large businesses leasing space.

On how improvements are handled:

Improvements are handled by the purchaser. Each business has their own needs and layout. They purchase an open lot and add what they want.

On how the units are marketed and sold:

Strata offices are marketed like residential, so they are pre-sold. A brochure comes out, there is a deposit structure, and the units close just like with residential. The marketing is more sophisticated than the leasing side and there are lots of investors. Price of commercial land is high, which provides a good opportunity to just buy a unit and lease it out for 5-10 years. It is more stable with less turnover than residential.

On the general price per square foot of pre-sale construction:

Price is similar to the mid-upper end residential condo market. The west side of Vancouver might go for $1,000-1,200 or more, and downtown is around $2,000 per square foot. The Brentwood and Metrotown areas of Burnaby go for $1,000 or more per square foot. The foreign buyers’ tax does not apply, which helps investors.

On why industrial real estate is so popular:

The market is strong, so people scramble to purchase. Property values continue to appreciate and interest rates, though recently raised, are still historically low. Mortgages are different from residential because industrial is tied to a business and banks will typically lend 90% or more of the purchase price, so terms are good. The deposit is 15-20% typically, but projects are different. Most clients are local, small businesses and need small-scale space (they often consist of light manufacturing such as coffee roasters, breweries, and clothing and furniture designers – “creative workers”). For larger international companies, it may not suit their growth plans.

On if there’s the same hype and popularity on the commercial side as there’s been with residential:

There has been more and more interest with every new project. It’s not to the same scale as residential, since the general public is less aware of commercial and office properties and the process.

On the price per square foot of rents:

Rents depend on factors like a building’s quality, age, view, and amenities. Rent is quoted on an annual basis and consists of two components. The basic rent goes up and down with the market, and the additional rent is the sum of operating expenses like taxes, insurance, cleaning, and utilities. Older buildings might be at least $40-45 per square foot, all-in. Newer, high-end buildings can go for $75-80.

On current projects Matt is excited about:

One is a four-floor building in which the first, second, and top floors all sold to one local business, a bigger company than was expected. The remaining floor was split into two suites. Another project Matt likes is a new one at Cambie and 6th. It’s a 45,000-square foot, four-story building of the same developer.

Five-wire:

  1. Favorite neighbourhood in Vancouver: Spanish Banks
  2. Favorite bar or restaurant: Miku (sushi) and Kissa Tanto
  3. West-side mansion or downtown penthouse: Downtown penthouse
  4. First place he takes out-of-town guests: A restaurant, Spanish Banks, or the seawall
  5. Best thing he bought in the past year for under $500: A Fitbit

 

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