Rapidly rising construction costs will not shrink Vancouver's tallest building, says the project's designer.

The 60-storey Living Shangri-La hotel and condo project at the corner of Georgia and Thurlow streets, slated for completion in 2008, had an initial reported cost of $250 million.

Bruce Tidball of Westbank Projects Corp. says he cannot estimate cost increases because expenses are "dynamic."

"The cost of the project has gone up," says Tidball.

Colin Goldie photo, courtesy of Westbanks Projects Corp.
The 60-storey Living Shangri-La hotel and condo complex will give Vancouver's downtown skyline a sharp new look when it's completed in 2008.

Vancouver-based Westbank, headed by Ian Gillespie, and Peterson Investment Group Inc., directed by Ben Yeung, are developing the site for Hong Kong-based Shangri-La Group of companies, which is controlled by the Malaysian-Chinese Kuok family.

Ledcor Construction Ltd. of Vancouver serves as the main contractor.

Construction costs have played havoc with many projects in the Lower Mainland and other parts of B.C.

In late January, Vancouver-based Anthem Properties scrapped its condo development in downtown Victoria, citing unexpected high costs. The New Westminster School Board has also decided not to build a new school and community centre complex that was originally budgeted at $60 million, but ballooned to $80 million.

Tidball says Shangri-La's budget contains a contingency component, as all project budgets do, to deal with cost overruns. The designer is confident the project can still be built on budget, and when asked if Westbank is going to change the design as a result of rising costs, he replies: "I don't know how we could do that."

The project, which takes up a whole block along Georgia between Thurlow and Alberni, is slated to include 227 live/work units and 66 solely residential units - including a $13 million, 9,000-sq.-ft. penthouse - above a 120-room luxury hotel that will charge upward of $250 per night.

The 600-ft. Shangri-La will replace the 48-storey (500-ft.) Wall Centre, located at the corner of Burrard and Nelson streets, as Vancouver's tallest building. A taller, 81-storey building has been proposed for Surrey, but that project may be slowed by a change in mayors in the Vancouver suburb.

If all goes according to plan at Shangri-La, the hotel will take up the first 15 floors while live/work sites will fill floors 16-42. Condos will comprise the rest.

Shangri-La will also contain an upscale Urban Fare grocery store owned and operated by the Jim Pattison Group. Construction began last March with the hotel, with most residences scheduled for completion in 2007 and the rest due to finish in 2008.

City council approved the project's extra height and density in exchange for the developers' agreeing to restore a nearby church built in 1919. Shangri-La also scored points with the city by including a public art gallery, roof garden and public spaces.

In addition to gaining city council approval, Shangri-La received the thumbs up from the city's urban design panel, which included local and international designers. The experts praised the developers for trying to make the site sustainable from the start of construction, rather than at the end.

According to a recent analysis conducted by the Independent Contractors and Businesses Association of BC (ICBA), construction costs rose 45 per cent in the province in the last five years, and will continue to jump 10 per cent annually over the next five years.

ICBA president Philip Hochstein says developers of large projects such as Shangri-La need to pay closer attention to budgeting, and ensure that they factor in contingencies, because their projects take longer to complete as a result of their size and lengthy civic-approval and construction timelines.

"Developers have to be careful how they price their units," says Hochstein. "They have to be careful that they don't under-price their units so they don't lose money on the projects."

According to the ICBA analysis, between December 2004 and December 2005, the cost of a residential high-rise increased 14 per cent to $230 per sq. ft. from $200 per sq. ft.

Hochstein adds residential developers should hold off on pre-sales - the process of selling units before construction begins - until costs are confirmed. Such a recommendation contradicts the belief that pre-sales are necessary to ensure developers can fund their projects.

"I think banks are more interested in making sure they've got their construction costs under control," he says. "It used to be pre-sales were more important. Now, (controlled) construction costs are as important as pre-sales."

Causes of the construction-cost inflation, says the ICBA analysis, include: "Upward pressure on wages after 20 years of declining real incomes, sharp increases in construction-material prices driven by world commodity prices and declining labour productivity due to the high ratio of new entrants into the industry."

Vancouver Regional Construction Association president Keith Sashaw is heading to Europe in March to help companies recruit skilled trades personnel, including managers and estimators under the provincial nominee program, which allows provinces to have more say in accepting immigrants for industries suffering labour shortages.

Hochstein is calling for both the province and Ottawa expand on the provincial nominee program and formulate a joint strategy to streamline the immigration process, allowing young skilled trades workers to settle in B.C., raise productivity and help mentor all the new apprentices being hired into the industry.

"It's got to be an easier, faster process," says Hochstein. "Really, what we're trying to do is change the mix of immigrants."

In 2003, he says, only six per cent of immigrants came to Canada to work in skilled trades - but that percentage needs to be higher.

He contends B.C.'s construction productivity is dropping because of the tight labour market, all the new trainees companies are hiring, and the rising construction costs.

"The higher the construction costs, the larger the number of marginal projects that won't be able to go ahead - that's inevitable," says Hochstein.

But Michael Gordon, senior central area planner for the City of Vancouver, says development activity should remain high downtown because of high real estate prices. Property values have gone up 100 per cent in the past four years, and developers will still be able to get a good return on sales.

"We don't see any stop to the fast pace of development in the downtown going forward," says Gordon, who adds that developers who hold onto land too long tend to be victims of high construction costs because land values fluctuate.

City planners believe there is room for one more project along the size of Shangri-La, but no tall building projects are coming up for approval. A similar-sized project would have to be built in the same area as Shangri-La to create the dome-like effect on the city skyline that council wants.

"They should be in the centre of the downtown so we can clearly identify the urban centre of the downtown," says Gordon.

Policy calls for such buildings to feature "superlative architecture" and provide a variety of urban benefits.

Municipal law currently does not require very tall buildings to qualify for LEED certification. (LEED is a standard which ensures buildings are environmentally friendly.)

But developers are coming in with LEED-calibre proposals anyway, says Gordon.

Shangri-La will feature a geothermal heating and air-conditioning system that is expected to reduce carbon dioxide emissions and reduce energy costs over the life of the structure.

Shangri-La is the first residential tower to go up in the heart of the downtown - bordered on the east and west by Granville and Bute streets. Other towers in the area contain offices and hotels. The city currently has a moratorium on office-to-condo conversions, but Shangri-La was not applicable because the site was formerly a parking lot, says Gordon.

(Monte Stewart can be reached at monte@businessedge.ca)