As people trickle back to the office in one fashion or another, is an investment into an office space the best opportunity in 2023?
Byron Chard, CEO and President of Chard Development, is back in the studio with Cory and Matt this week to discuss his latest office projects along with the success of those projects and everything Chard has on the books for 2023 and beyond.
Byron shares how Chard has pivoted among the many challenges the economy is currently facing, as well as retail, light industrial and purpose built rental opportunities, Byron also shares his thoughts on the overall market place and markets Chard is excited about.
A great friend of the show and one of Matt’s fan favourites, Byron never disappoints and this episode is no different, so get out the note pads and be sure to take in as much as possible!
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
What is Chard Development?
Chard Development is a family company based in Vancouver. Our business strategy is diversifying by asset class and focusing on specific geographic regions. We’ve focused on the City of Vancouver, City of Victoria and the North Shore. We’re building over 2500 units, with 2000 of those being rental. We also have over half a million square feet of commercial space under construction.
How did the recent BC municipal elections affect your development strategy?
I’m glad the municipal elections are over! Now that those are over, we have clarity around who we’re working with and what their priorities are. We can now make calculated decisions about where we want to invest and how we can build to meet the needs of the community.
At the end of the day, a municipal election is the community telling us where they want to go. We use these elections as a gauge of public feedback.
How has office culture changed in the last few years and how can developers adapt to the new needs in office space?
We need to ask why people come into the office. There needs to be something desirable to attract people back into the office; that’s the responsibility of the landlord and the business owner.
We’re asking: How do we program amenity space and community benefits? So that’s looking at things like a fitness facility that’s strong enough that an employee doesn’t need to have a separate gym membership or partnering with a local brewery to do tastings on-site. Those things increase the likelihood of people coming into the office.
The other reason people come into the office is people. So we need to look at how we build to support collaboration and spaces that allow for interaction, such as rooftop patios and meeting rooms. We have to relook at how office spaces are designed and used. What is the benefit to the employee that will get them into the office?
The best way to attract younger employees into the office isn’t to tell them they have to come in, but to show them that they will have a better work-life experience because of it. That’s our job as landlords and business owners.
Has there been a fundamental shift in how we think about office space?
Yes and no. When building office space, you have to fit in with your neighbourhood context; working in Mt Pleasant is very different than working downtown. This is our sixth building in Mt Pleasant so we know the community well. There’s a reason why employees want to be here.
But at the end of the day as landlords, we are still designing spaces that allow the tenant flexibility to also design the space to fit their needs. So we need to ensure all of the fundamental components are flexible.
The environmental standards of building are also changing and becoming more important to tenants. We need to ensure all of our new buildings are certified and scoring well to assist tenants in getting financing or institutions who seek ownership in the future.
Can you tell us about Chard’s project on Marine Drive?
The project is called Forum; it’s located at 750 SW Marine Drive, just a few blocks from the Canada Line station. It’s a vertical building with retail, light industrial and office space. It’s eight storeys high with a lot of amenity space.
We launched Forum at the beginning of October 2022 as our third strata project. We’ve had fantastic uptake to start. Our presentation centre is seeing very strong traffic; both brokers and end-users are active. With commercial real estate, patience is a virtue because this is a business decision.
So we’ve seen a strong pick-up but patience is important. We have pivoted our model to increase customer service to help businesses make these decisions, understand the process of owning their own space and bring their vision to life. That was a huge barrier to entry, so we’ve really stepped up our customer service.
For us, this isn’t just a transaction – we’re partners. So your success is our success. We want to make sure we’re protecting our partners’ investment into these buildings.
Chard Development works in both Victoria and Vancouver. How are these markets different?
We’ve seen similar trends in Victoria and Vancouver real estate. Both are very dynamic markets and rising interest rates are impacting all sectors.
We just heard that 500,000 people will be moving into Canada every year under our new immigration program. Those people will need a place to live and they will need a job. We’re hearing news of new jobs being added and unemployment holding steady. So there’s lots of progress happening.
The difference between Vancouver and Victoria is that Vancouver sees a large amount of international immigration while Victoria sees a lot of interprovincial migration. In Vancouver, we saw 20,000 international migrants in 2021, whereas Victoria only saw 161. But on the domestic side, Victoria saw over 7000 interprovincial migrants while Vancouver only saw 520. So we tailor our projects to who is actually moving to those cities.
We also look at who is entering the labour market. Because our labour market is so tight, we have higher inflation. But immigration and an increase in our support programs will bring more talent to the market.
Millennials are tech-savvy and comfortable working remotely for companies all over the world. So we’re seeing a shift in local retail and hospitality jobs that used to be occupied by 22-28 year olds. Then we have the 28-35 year olds who want an in-person job for that human connection. It’s interesting talking to recruiters and seeing the changes in employment, as well as the difference in employment trends across Victoria and Vancouver.
Are older people moving back to cities? How is that impacting the rental market?
Absolutely. A lot of the people moving back into the city are renting. Our rental market is getting squeezed by so many different dynamics right now.
We need the provincial and federal governments to come to the table and help us alleviate this rental crunch. Everything is pushing more and more people into the rental market – rising interest rates, immigration, a move against vehicles, etc. We need government support to drive rental projects.
How do we get through the bottleneck on rental projects?
There is definitely a huge bottleneck with rental projects. It’s very challenging to make a pro forma work with a rental project these days. We’ve seen rents increase but that is being offset with cap rate increases. We’re seeing a flatline on rental values but increased costs due to rising interest rates, fees and construction costs.
This creates a real challenge for rental developers. The debt equation for rental projects has just gotten worse but we can only take on so much debt. So if costs go up, that means more equity is required.
How will developers find that equity? At Chard, we’re privileged to work with institutions to get our capital for these projects. But it’s a challenge. If more equity is required, a return is needed too. I can’t go to the teachers or police officers and tell them they’re going to get a negative pension because they’re helping with a rental project.
Landlords need to have a bigger say at the table. There are absolutely tenants who need help – no question about that. However, there needs to be a collaborative approach with landlords and tenants at the government level. It can’t just be a hammer coming down capping rent increases. We need to balance that with who actually needs the help. Landlords also need help to maintain buildings and create a positive housing experience for tenants.
I’m optimistic that David Eby will pay close attention to housing and that it will be a hot topic at the next election. He knows that we need more affordable housing built and we need BC Housing at the table. Collaboration is how we’re going to solve this. Developers are part of the solution too.
What current challenges are developers facing? How has Chard pivoted?
We have pivoted from a “just in time” model to much longer lead times. Development is about bringing stakeholders together and lenders are a big part of that equation. We work with them on pre-purchasing, to place deposits, to pre-buy our materials, etc.
We’ve brought procurement in-house so we can track our supply chain better. We’re trying to procure as much as possible from Canada or North America to support local businesses and reduce supply chain challenges.
We’re also working on financial solutions. How can we put hedges on commodities? How can we mitigate risk by using our financial instruments? We’re trying to get creative and see how our stakeholders and lenders can help us. Any delays really hurt a project, so we’re trying to avoid them however we can.
Is there another moment in history that reminds you of where we are at right now or is this completely new territory?
When the leadership at Chard transitioned from my father to me four years ago, we set up an advisory board. So we have some very smart individuals to help me navigate all of today’s challenges. I took over the company in 2019, meaning my dad handed things over right before covid and now a potential recession.
Covid was a huge growth facilitator for Chard. We strengthened our relationships and focused on who we are as a company. We saw lots of benefits through new projects and selling out our projects. It was all down to communication. Every day in March and April 2020, I was on the phone with someone letting them know what we were doing.
Now that we are approaching a potential recession, we have seen things like this in the past. Whereas covid was new territory, I can now utilize the expertise of people who have been through recessions before. I can work with them to best position Chard proactively.
I don’t squeeze the orange as hard as I could on our pro formas. We mitigate risk through the product we build. We build a lot of rental and partner with a lot of nonprofits. We finance a lot of our condos in a way that protects purchasers and allows us to deliver.
The fundamentals of who we are have been reinforced this year. We’re asking ourselves, “Who are we and how do we come out stronger?”
Besides Vancouver and Victoria, are there other real estate markets you’re looking at?
We are always watching the market and looking at where we want to go. I think the fringe of the City of Vancouver and City of Victoria is the best place to invest.
People don’t want to be right downtown but they do want that “15 minute city.” They want to be able to walk to work, walk to get a coffee, and walk to the grocery store, but still have the tranquility of not being in the downtown core.
I’m a big fan of East Vancouver. It’s a market to watch in 2023 and one to invest in.
What does the future hold for the rental projects and strata condo?
I wish I had a crystal ball but my prediction is rental developments will slow down. CMHC may announce an increase in rentals in their next report but those are actually projects that began in 2021.
I think the next year will see really low starts for rental projects, which is very unfortunate. We need more rental product but it’s becoming too challenging to build. And we won’t see a change in that until governments realize it’s a big problem.
In terms of condos, I think we’ll see an increase in pre-sale activity in 2023 and a lot more pre-sales come to market in 2024. That will be driven by investors who see rental rates that support the value.
I think we’ll see a steady stream of pre-sales come to market over the next few years. The key question for investors is: Who is the developer? Developer reputation will be the most important thing, so we’re focusing on how we can best position ourselves at Chard.
Find out more: https://charddevelopment.com/ and https://www.linkedin.com/company/chard-development/