The 25-storey office tower at 601 West Hastings St. is steps away from downtown Vancouver’s Waterfront Station and is owned by PCI Developments, which has started using an alternative strategy that includes show suites to lease the space.PCI Developments & B+H Architects/Supplied
Vancouver landlords still recovering from the effects of the pandemic are trying to lower vacancy rates by shifting their leasing strategies to provide already-outfitted, move-in-ready show suites rather than shell spaces that tenants build out.
While the city posted a 9.5-per-cent vacancy rate in the first quarter of this year – the only major Canadian market to report a single-digit percentage – developers like PCI Developments have found leasing success when implementing a show suites strategy.
“We didn’t want to wait for tenants to tell us what they wanted because there weren’t a lot of tenants looking for space,” senior vice-president Jarvis Rouillard says, referring to the company’s efforts to lease a new development in the city’s downtown core.
“[That] moved us from an interesting option for tenants to a short-listed solution almost every time.”
Born out of necessity
Vancouver, which emerged as a successful outlier amid the pandemic’s lingering effects, continues to outperform major Canadian cities such as Toronto, Montreal and Calgary, which recorded vacancy rates of 10.9 per cent, 17 per cent and 22.9 per cent respectively during this year’s first quarter, according to Colliers.
Despite its strong office market, developers and landlords have not been immune to the pandemic’s fallout.
In 2019, locally based PCI started construction on a 25-storey office tower at 601 West Hastings St., steps away from Waterfront Station, the main transit terminus in downtown Vancouver.
Construction finished in 2021, which Mr. Rouillard acknowledges as “the worst time for an office tower to [have been] completed.”
Right after it was built, the 217,000-square-foot building had an occupancy rate of less than 20 per cent. Once PCI noticed workers were returning to offices about six months later, it took action.
It now has a mid-80-per-cent occupancy, with three-quarters of the improvement attributed to the show suites strategy, Mr. Rouillard says.
While PCI didn’t invent the show suite concept, the company was one of the first to apply the approach to entire floors. Since then, nine floors have been fitted out and leased, with three more floors currently in the pipeline.
Locally based interior design firm Edit Studios Inc. worked on the show suite design at 601 West Hastings St. under the assumption that the tenant would be a tech company. The firm focused on the kitchen, reception and elevator areas.Edit Studios Inc./Supplied
A frictionless experience
Until 2019, commercial landlords had the advantage, says Janay Koldingnes, founder of Vancouver-based Edit Studios Inc., an interior design firm that worked on PCI’s West Hastings Street tower.
“There were people in our market,” she adds “It was keeping our vacancy very low. Landlords could pretty much do whatever they wanted. They could bring to market space that is just shell – raw ceiling, raw floor – and say ‘take it or leave it.’”
Tenants would then have to secure permits, hire contractors and manage the project, which could take up to a full year. Aside from the hassle, long timelines also meant companies had to think about their workplace needs a year in advance, which could be a challenge.
Today tenants want a frictionless experience and move-in-ready space, while landlords are dealing with massive full-floor vacancies that they’ve never had before, Ms. Koldingnes says.
Designing show suites
When developing show suites, there is a predictive element because designers are making educated guesses, based on demographics and tenant profiles, about what an unknown tenant may – or may not – want, Ms. Koldingnes says.
For 601 West Hasting St., the design team assumed the tenant would be a tech company.
“We built out the core and left the perimeter vacant and paid a lot of attention in designing the kitchen, reception and elevator areas,” she says. “It’s move-in ready, it feels lived in, it’s staged. If we hadn’t done the plants and the art, I don’t think it would resonate as much. There’s an emotional connection that people make or don’t make, and that’s really important to get right.”
The fitted-out floor cost PCI around $140 a square foot, with show suites generally ranging from there up to $180 a square foot, Ms. Koldingnes says.
Under the traditional shell space model, tenants often receive an allowance toward outfitting their office. Prepandemic, these ranged from $30 to $80 a square foot but are now closer to $100 to $200 owing to rising construction costs.
Landlords are often not getting a return on investment until after five years or when a tenant’s lease is up, Ms. Koldingnes says. The hope is that tenants stick around at higher rents because that office has become their base.
When designing the show suite, Edit Studios Inc. ensured the space felt lived-in and move-in-ready by adding plants and art. The goal was to establish an emotional connection among those who would be occupying the space.Edit Studios Inc./Supplied
If you build, they will come
Ms. Koldingnes is expecting this trend to endure because there are now enough success stories that landlords are comfortable with the show suites strategy, she says.
She is currently fitting out space at 700-750 West Pender St. – a downtown Vancouver office complex that KingSett Capital acquired from Cadillac Fairview last year – and is increasingly seeing larger show suites on the market.
A key question for landlords is whether they can afford to leave space vacant while waiting for market conditions to improve.
Landlords who aren’t in a rush or don’t want to make upfront investments in building upgrades have to make peace with potentially sitting on shell space for years, which is why many are starting to recognize show suites’ benefits, Ms. Koldingnes says.