By the time Reliance Properties’ proposed Davie Street mixed condo-office tower completes roughly three years from now in downtown Vancouver, the decision to include several floors of office space is likely to be a good one, says CEO Jon Stovell.
Reliance has submitted a rezoning application to the City of Vancouver for 902 Davie St. The proposed building, designed by Neil M. Denari Architects and Bingham + Hill Architects, aims to add to the market 179 condos, 4,700 square feet of ground-level retail space and just under 37,000 square feet of office space on five lower levels of the 29-storey tower.
“We are expecting a real shortage, a dire shortage of new office to be coming into the market 2027, 2028,” Stovell told RENX. “We’re still pretty bullish on that sector returning, especially for brand new high-quality stock.”
Stovell, who is both president and CEO of the Vancouver-based developer, said the office space planned for the new Davie Street tower will have its own entry and will function like a standalone office building. Its users will enjoy access to the building’s roof deck.
Brokerage firm Avison Young marked Vancouver’s all-class downtown office vacancy at 12.5 per cent at the end of 2023, but the numbers do suggest tenants are scooping up the newest and best work available spaces.
Stovell agrees. “Brand new or triple-A product has the lowest overall vacancy rates and that’s starting to decline.”
Avison Young’s Metro Vancouver Office Market Report for Q4 2023 showed positive absorption of 120,914 square feet in Q4 2023 for class-AAA/A, compared to negative absorption of 140,470 square feet in class-B and -C.
Meanwhile, rental rates have remained steady and it’s expected class-AAA space will continue leasing for a premium, the researchers at Avison Young believe.
Reliance seeing a right-sizing taking place
“The current trend is tenants are right-sizing,” Stovell said. Many tenants are shrinking their footprints from their existing, inferior buildings and then relocating to new, class-AAA space in new office buildings.
Stovell said folding office into mixed-use tower developments is a way to add new workspace to the market with less risk.
“Being able to assist an office building with condo pre-sales means that you could get new product into the market that you can’t on a standalone basis.
“We feel very strongly that anybody that’s got a brand-new office sitting ready to go in 2028 or late 2027 is going to be renting into a wildly undersupplied market.”
Stovell said 902 Davie represents the final tower in the Burrard Place cluster.
The 550-foot-tall One Burrard Place residential tower is now complete and the 13-storey office tower, occupied by Lululemon at 1280 Burrard St., is also now finished.
2 Burrard Place, a 36-storey residential building on Hornby Street, is under construction. All three of those towers were a joint venture with Jim Pattison Developments.
Reliance is developing 902 Davie on its own.
Given the city’s required protections of view cones and shadowing, the design of 902 Davie required some creative design and shaping, Stovell said.
“We don’t like those constraints. It makes the building less efficient, makes the housing more expensive, but once we accept that we have those constraints, we try to turn it into an architectural outcome and I think it’s quite a unique building as a result of that.”
Development conditions challenging, but improving
The residual impacts of the pandemic are continuing to challenge the development industry, Stovell said.
One of the primary outcomes was an acceleration of construction cost inflation well above that experienced in Canada for other goods and services. Stovell estimates construction costs increased 50 to 60 per cent through the pandemic period. That has put many developments in the hole.
“Developers are redesigning and recalibrating and waiting and trying to find ways to make projects work.”
However, many can’t and the market is starting to see properties come to market on court-ordered sales, he said, adding that “mop-up” will continue through 2024 as the development market rebalances.
The acceleration of construction costs has appeared to slow, though. Stovell said he recently received a bid on a construction project that came in under budget. It was the first time he’s seen that in three years.
Widely expected interest rate cuts this summer would also help.
For its part, while several Reliance projects are moving forward one is on hold. Last week, it halted the rezoning process for a 46-storey mixed-use tower planned at Arthur Erickson Place.
The proposal, after resistance from the city, eventually included a design for 429 rental homes and a 72-room hotel at the site of the property’s parking structure. Stovell told RENX the ownership group evaluated the economic landscape and decided to suspend submission of the rezoning package.
“This pause was a strategic response to adapt to rapidly evolving Vancouver real estate market dynamics and to focus on the existing asset,” he said.
The Beachlands master-plan construction begins
Meanwhile, Reliance together with its joint venture partner Seacliff Properties, has started construction on the first phase of a master-planned community in the Victoria area.
Seacliff Properties and Reliance launched the joint venture in 2022 to build a $1.2-billion, master-planned seaside community over a 15-year period in Colwood. Initially called Royal Beach, the project has been renamed The Beachlands.
It will be a collection of neighbourhoods totalling 2,850 homes including single-family houses, townhomes and apartments, plus hundreds of job spaces in commercial buildings and retail spaces.
The site is 135 acres of oceanfront land along 1.4 kilometres of shoreline. More than 47 acres of the site will be dedicated to public parks and greenspace.
The first two phases will include a 12,000-square-foot commercial building that will initially provide the Discovery Centre and eventually a food and beverage retailer. Stovell said construction of the Discovery Centre has commenced.
Construction on the first multifamily building will also start in the next few months, he said. The 180-unit building, including 20 townhomes, is set in two six-storey structures over a shared parkade.
“We hope to bring about 200 units a year to the market over the next number of years.”
Reliance maintains busy slate of projects
Stovell said his team is also busy elsewhere in Victoria, where it’s focused on a seven-acre development aimed at reimagining a large tract of the northern section of downtown that will see the Art Gallery of Greater Victoria moved into a new arts and innovation complex at the site.
Stovell said the project will include several buildings that will help activate the waterfront and house industrial and commercial space, offices, homes, live and work creative units, and public space. Reliance expects city council to review the latest plans in April.
In Vancouver, Reliance is also working on a proposed development at 130 West Broadway for a two-tower rental project at the site of the former Mountain Equipment Company store.
A partnership with QuadReal, the proposal aims to build 524 secured market rental units in two towers rising 28 and 29 storeys.
The plan also includes two floors of commercial space and a child-care facility with room for 37 children. The project is proposed within the Broadway Plan and Stovell said council will review the proposal in the next few weeks.