The sign says: Future home of the Technical University of BC.

Behind the sign, a 25-storey skyscraper is beginning to show its shiny side to the world – and all looks well in the paradise we know as the Lower Mainland.

Last year, Vancouver was rated the number-one city in the world in terms of quality of life, according to a new survey by international consulting firm William M. Mercer.

Photos by Kenton Friesen, Business Edge
Central City, a development by ICBC in the Lower Mainland, is nearly completion, but i facing a challenge finding tenants to lease space.

This year, it fell behind Zurich, Switzerland, largely because of traffic-congestion problems.

The prime location, enviable climate and diversified economy has made it a landing point of choice for thousands of immigrants who can share in the joys of Canada without suffering through salty streets and raging blizzards.

But unique political decisions and struggling high-tech and lumber industries have left the British Columbian economy floundering.

So what is ICBC doing building a highrise at a time when the office vacancy rate in the Lower Mainland is at 9.7 per cent and climbing?

The demand for residential units has led to a boom in construction of walk-up apartments in the Lower Mainland.

For starters, ICBC is planning to make use of 185,000 sq. ft. of the almost one million sq. ft. Class A office space for office consolidation and Tech BC came on as a major tenant with requests for 450,000 sq. ft.

But the high-tech meltdown in 2000 and the lack of a subsequent recovery has kept the school’s enrolment down to about 40 students and it has been taken over by the Simon Fraser University.

Unless you’re studying golf, 11,000 sq. ft. per student seems a bit excessive and the deal is on shaky ground, says Alex Toporowski, director of research for Colliers International in Vancouver.

The story has echoes.

Nortel Network’s large Slough Estates lease in Burnaby sits empty and many of the trendy loft-style offices that housed start-up high tech companies are feeling lonely.

Yet office buildings continue shooting toward the sky throughout the Lower Mainland, though many of them are under construction merely because the demand existed in their infancy.

Vancouver’s downtown core has an office vacancy rate of 8.8 per cent, compared to the national downtown average of 9.9.

It sounds fine compared to Calgary and Edmonton. Avison Young Commercial Real Estate’s latest figures put the Calgary downtown vacancy rate at 8.75 per cent.

Edmonton’s downtown is fluffing its feathers for finally sinking below the 10 per cent barrier.

But Toporowski predicts Vancouver’s downtown numbers will cruise into the double digits with an additional 1.25 million sq. ft. of new office space hitting the market by the end of 2002.

With our dominant economy and lowering office vacancy rate, it seems ironic that Vancouver is getting shiny new office towers.

The critical part of the equation is lease price.

Toporowski says foreign investors are still happy to wager on the commercial real estate market in Vancouver because of the low financing rates and lease prices of up to $30 per sq. ft. for Class A office space.

That price has stayed fairly constant as the vacancy rate has risen, but the net effective rate is lower as landlords are baiting tenants with large inducements and some free rent.

“There is lots of speculation that Vancouver will do very well in the future,” says Toporowski, pointing to a cap rate that is close to the lowest in the country.

While the commercial real estate is travelling a rocky road, the residential market in Vancouver is benefiting from the province relinquishing its reputation as a resource-based economy, which is causing the interior towns to evaporate.

“The demographic trends are changing in B.C.,” says Toporowski.

“Fifty per cent of immigrants used to come to the Lower Mainland and 50 per cent to the interior (of B.C.), but now 80 to 90 per cent are ending up in the Lower Mainland.”

The high immigration combined with the low interest rate have houses flying off the market.

The average selling price of a single-family, detached home in the Fraser Valley (stretching from North Delta east to Abbotsford and Mission) has increased from $245,455 in March of 2001 to $264,582 at the end of March this year. Apartments in the area have made an even bigger leap of 21.7 per cent.

Sounds familiar, but for sheer predictability I’ll take Edmonton’s diverse economy and fair oil prices over Vancouver’s tossing and turning any day.

Now if we could just steal their palms and mountains . . .