Residential use competes with office use for ultra-valuable space
Frances Bula
Sun
Vancouver has been wildly successful at attracting regular people, complete with their dogs and baby strollers, to the downtown. Some are wondering what impact that is having on the traditional downtown of the suit-and-briefcase crowd. Photograph by : Mariken Van Nimwegen, Vancouver Sun
In Portland, business groups started fretting a decade ago that the city’s downtown was turning into a party and shopping zone at the expense of real jobs.
In Toronto, people are celebrating this week because the city’s first major office tower is being planned after a 14-year hiatus.
In New York, analysts are warning that a severe shortage of office space may drive people to the suburbs.
Welcome to the new, 21st century urban preoccupation, after four decades of trying to lure people into living and partying downtown: Making sure that downtowns are home to businesses, not just homes, hotels and tourists.
That’s being driven by a new dynamic: businesses that want to be downtown. Just like condo buyers, they’ve decided that being downtown is cool, and convenient.
In Vancouver, the city that has come to epitomize the successful residential downtown to envious planners and politicians across North America, that has produced a crucial crossroads moment during which the downtown is about to be reshaped in a dramatic way
“You can certainly expect the definition of the ‘metropolitan core’ to explode,” the city’s influential planning director, Larry Beasley, said to a sold-out crowd of developers recently, as he described a Vancouver with an enhanced new downtown district that extends out to False Creek Flats, to 16th Avenue and across to Burrard.
Beasley didn’t mention it in his speech, but city planners are also looking at every option to provide space for office-based business. That could include increasing the allowed height of buildings in the core downtown, expanding the “office-only” zone and shrinking or eliminating some of what’s called the “choice-of-use” zones in which developers once had the option of residential or commercial.
“We have a lot of options to create space,” says Ronda Howard, the planner who has been conducting the first phase of the city’s massive metro core study. She’s about to take the findings from the first phase –who is living and working where in downtown Vancouver — on the road to take public feedback before planners make their decisions about which options they should use.
Former Vancouver planning director Ray Spaxman also says the city has reached a turning point at which it needs to make some critical decisions, the way it did 35 years ago, when he and the council of the day established the foundation for the “Living First” downtown.
“This is when Vancouver has to break out. When commercial needs to grow, it needs a downtown,” says Spaxman.
That’s all very different from a mere three years ago, when Vancouver city planners decided to allow two residential buildings in the core business district, the Hudson at the corner of Granville and Dunsmuir and the Shangri-La, at the corner of Georgia and Thurlow.
Both were proposed for long-moribund sites and both came with the enticement of providing the city with valuable perks: heritage restorations, a new wheelchair accessible entrance to the SkyTrain at one, a public art garden at the other.
In keeping with a policy set in 1997, planners commissioned an independent study to assess whether there was a healthy 20-year land supply for offices downtown before it would allow such an unusual use conversion. The report concluded there was.
However, city planner Andy Coupland took a closer look at the background statistics for the report and became alarmed at what he saw. Yes, there was a healthy office supply if a certain percentage of sites in the “choice-of-use” areas were developed as offices. That didn’t seem to be happening. Everything was going to residential, where the ability to sell condos for $350 a square foot and more was trumping office space that rents for $15 to $25 a square foot per year.
Those two projects, along with the conversion of the former Westcoast Transmission building into the residential Qube project and a number of others, also set off alarm bells for another set of people: the commercial real-estate brokers. Added to that, the whole office market destabilized as other owners played with the idea of converting to residential.
“There was a huge uproar about the Hudson,” says Wendy Waters, research director for Avison Young, and commercial brokers have been beating the drum about the need to make sure the city makes room for office space.
“What the commercial sector is saying is that it’s gone too far,” says Waters. Avison’s report featured nine buildings with Xs through them, office buildings lost to residential, a total of three million square feet or four years’ supply at the current high absorption rates. It warns that some businesses will be forced into the suburbs over the next three years because of the lack of supply.
Currently, the only known office space planned downtown is in two mixed-use buildings. The Bentall V is building the second half of its tower at Burrard and West Pender, but that is already 93-per-cent leased.
Howard says the city has been approached by major office builders who appear poised to come in with formal applications, but it will likely take three years before any new building opens.
CBRE analyst Chris Clibbon points out the city has also lost commercial sites to residential in the equally important Broadway downtown, where the vacancy rate is lower than in the hard-pressed central business district.
Those losses are crucial, says Waters, because downtowns are still important.
“EA [Electronic Arts] can operate anywhere; it doesn’t need to leave the building. The reason why you need a downtown is so that companies that need to be in close proximity to each other — resource companies, legal, accounting — can do that. You lose efficiencies if you [divide those facilities].”
Downtowns are becoming attractive even for the companies that don’t strictly need them. EA wants to be downtown, as does Disney-based Propaganda Games and a host of others. While EA’s main operations are still in Burnaby, it leased offices in one of the last new office buildings constructed, sharing space with PriceWaterhouse Coopers.
That kind of blending is a trend in Vancouver offices, as Howard has discovered, as both new and traditional businesses have boomed and expanded or moved into the downtown. West Fraser Timber, one of the province’s major forest companies, shares a Yaletown building with the software developer Pivotal, while Relic Entertainment, TeeKay Shipping, and major insurance and investment offices share the Bentall V. Shaw Communications — purveyors of digital TV and the Internet –moved back downtown, sharing space with the construction company, Ledcor, and the Pattison empire.
“There was the trend to go back to the suburbs in the late ’80s and early ’90s. Now a lot want to move back downtown,” says Waters. “Being in the suburbs can be boring for employees. Companies that could go anywhere in the world are choosing Vancouver. The 24-hour downtown is attracting people. There aren’t very many of those in North America.”
That’s all quite a switch from the pattern of the past 50 years.
North American downtowns started going through profound changes as post-Second World War suburbanization altered the urban fabric forever. People moved out first and for a while, they commuted back to work in the traditional downtown. But by the 1970s, jobs were following them out to the suburbs.
Between 1979 and 1999, cities’ share of metropolitan office space significantly diminished, according to a comprehensive analysis by the Brookings Institute’s Center on Urban & Metropolitan Policy.
In those 20 years, office space dropped from 74 per cent to 58 per cent in central cores. By 1999, only New York and Chicago, of American cities, had a majority of office space in the primary downtown. In some cities, such as Philadelphia or Atlanta, the majority of office space was in the suburbs by the end of the century. Cities such as Boston, San Francisco and Los Angeles did a little better, with their office space evenly split between their metropolitan cores and their suburbs.
Vancouver followed the trend. In 1982, the suburbs housed 25 per cent of the Lower Mainland’s offices. By 2002, it was 40 per cent.
The late ’90s dealt more blows to downtowns. Corporate mergers boiled down the business sector. Technology eliminated thousands of clerical workers. The high-tech boom collapsed.
“If you look around the world, the first-level cities are still building offices, London, New York,” says University of B.C. professor Tom Hutton, who has studied central cities for 25 years. “If you look at medium-sized North American cities, most of them have had a pretty slack office market for a while.”
The result was that residential developers flooded in during the 1990s, helped by city planners looking for ways to bring back the vitality downtowns once had.
“There were some people who even argued you could have a central-city economy based on consumption,” says Hutton.
Now the backlash has started with cities from Portland to San Antonio to Toronto publicly debating whether they have gone too far in turning their downtowns into residential playgrounds.
Like many urban analysts, Hutton thinks the predictions that Vancouver is turning into a resort city are hyperbolic. “It was an exaggeration for effect.”
The statistics generated specifically for Howard’s study also don’t paint a picture of a resort downtown where people need to commute to the suburbs to find work.
There are 220,000 jobs –140,000 office jobs among them — in what the city is now calling the metro core, the downtown-Broadway corridor-False Creek Flats nexus. About half of those jobs are held by people who live in the city; the other half are held by people who commute from the suburbs.
Conversely, about 60 per cent of people who live in the metro core work there. Just under a quarter work outside the city.
However, even though the sky is not falling, Hutton also believes it is time for Vancouver to develop a new plan for fostering production jobs in an expanded downtown.
Having a healthy production sector is vital for the city’s economy.
“You have a relatively small proportion of the land base supporting 40 per cent of the tax revenues here,” says Hutton.
That doesn’t mean going back to the old-style downtown of the 1950s that was the centre of the universe.
That can create its own problems. In Seattle, for example, there’s been considerable concern about the “runaway downtown” where too much space has been devoted to offices, stadiums and arts venues. The 15 million square feet of office space added to the city’s core since 1979, the Seattle Displacement Coalition argues, has created 50-60,000 more commuters to the downtown from the suburbs.
That group has argued in favour of the kind of plan the Lower Mainland developed 30 years ago, the Livable Region Strategic Plan, that envisions a central downtown and regional town centres, each with their balance of work and housing.
The problem in the Lower Mainland — bigger than the issue of Vancouver’s downtown — is that that kind of plan isn’t working either because of the competition between housing development and space for jobs.
Concert Properties CEO David Podmore said his company recently tried to buy a couple of sites where they could build office space in Richmond. They were out-bid by residential developers. The same holds true for North Vancouver, Burnaby and other places that were supposed to be regional town centres with satellite downtowns.
“Across the Lower Mainland, there is a trend toward residential uses taking over what once was commercial and industrial,” says Waters.
A recent study for the Greater Vancouver Regional District has highlighted a dire shortage of industrial land that is forcing businesses to go to Calgary because of a lack of space here.
Now that’s something to worry about.
© The Vancouver Sun 2006
