When Al Batchelar and his team at Commissionaires BC decided they needed new space for their business, they looked at several suburbs and types of office developments.
In the end, they chose a spot in Surrey’s Station Tower, which is steps from the Gateway SkyTrain station, picking it over cheaper space in a Surrey or Richmond business park.
“A lot of people who need our services don’t have transportation,” says Commissionaires’ chief executive officer Mr. Batchelar, whose non-profit company, originally started to provide work for war veterans, now provides fingerprinting and criminal-records checks for people who need them as a condition of employment. The company also runs courses for people training to be security guards.
“Even if we had a place with lots of parking somewhere else, we just couldn’t get people there.”
That scenario is playing out in major cities across Canada, as more office tenants are choosing locations that are as close to transit as possible, even if it means paying more.
As a result, buildings right on top of transit are seeing their vacancy rates shrink and lease rates rise.
Office vacancies are creeping up in buildings that are sometimes only a few crucial blocks away from a transit site. And the vacancy rates are even grimmer for many older business parks that were built kilometres from transit at a time when it seemed savvy to construct whole campuses on cheap land far from central business districts.
“What we are hearing from tenants most often these days is that priority one is access to transit and it can’t even be a walk down the street,” says Brett Miller, president of Jones Lang Lasalle Real Estate Services in Canada.
That was a priority for Vancity Credit Union when it built its new head office in 1995, a unique building where the SkyTrain literally runs right through the building.
“We wanted to be on rapid transit and our stats show our staff use transit now 50 per cent more than the average for office workers,” said Jeremy Trigg, Vancity’s director of facilities and environmental management.
It’s also a key factor for the giant engineering-consulting firm Fluor Canada, which has hung onto its downtown locations in Vancouver. “We felt it was the most efficient situation for our company,” said vice-president Vasee Navaratnam. A just-completed survey of the company’s 800 employees, who are spread out in three buildings near the Burrard SkyTrain station in downtown Vancouver, showed that 65 per cent arrive by transit. (An additional 23 per cent walk, one per cent ride bicycles, and only 11 per cent arrive in cars or motorcycles.) Many companies and commercial brokers have been telling similar stories in recent years.
But Mr. Miller’s company decided to test the whole thesis in a way that went beyond anecdote. Jones Lang Lasalle has published two reports now, one at the beginning of this month, looking at the importance of transit in the Vancouver market.
The latest of their “rapid transit office index” reports concluded that tenants are willing to pay considerably more to get into a similar building that’s closer to transit.
The statistics-stuffed report concluded that tenants will pay a 22-per-cent premium in Vancouver, Surrey and Burnaby, three of the largest office markets, to be within 500 metres of a transit station. As well, vacancy rates for buildings outside that 500-metre range can go up to 25 per cent higher than a transit-oriented building in the same suburb.
Back at Surrey’s Station Tower, for example, the average asking rate is $24 a square foot and it has zero-per-cent vacancy. In contrast, the Benchmark Business Centre, a high-quality business-park complex also in Surrey, has an average asking rate of $17.50 a square foot, with a 17.8-per-cent vacancy rate.
The situation is worse for some of the older business parks in suburbs without even a hint of reasonable bus transportation.
“Richmond by far and away is our worst performing office market,” says Darrell Hurst, a commercial broker at Avison Young who handles Station Tower and other properties. Its business parks on the east side, far from the new Canada Line, are older and without some of the amenities – basketball courts or multiple restaurants – that newer ones have. And they are just plain hard to get to.
Both Microsoft and BC Lottery Corp. moved out of Richmond in the past five years and into Vancouver.
Mr. Hurst said some business parks are trying to grapple with the transportation issue by providing their own shuttles to the nearest transit station.
Other business-park tenants, if they’re large enough, are going into the shuttle business themselves in order to retain employees. And they’re choosing their business parks carefully.
When Horizon Distributors, a company that trucks organic and natural-food products to Whole Foods and other grocery stores in the region, decided it needed larger space in 2008, it looked at price per square foot. But there were limits to that approach.
“One of our criteria was that it had to be a place that was inside the bridges,” said vice-president Terry Newell. “And we knew we couldn’t have a distribution centre just anywhere when half the people in this business don’t earn enough to buy a car.”
So Horizon chose a business park in south Burnaby for its 150,000-square-foot operation, a few kilometres away from its previous north Burnaby site, and decided to pay for a shuttle to carry employees to and from the nearest SkyTrain station at Edmonds.
“I figured over the long haul that a $100,000-a-year shuttle was better than an extra $500,000 a year in rent,” Ms. Newell said.
But, as for moving the site to even cheaper space 40 kilometres away in the Fraser Valley and impossible to connect to transit even with a shuttle – she wouldn’t even consider it.