sdm
Mar 17, 2009, 3:00 PM
Halifax caught in a Class A squeeze
ELEANOR BEATON
Globe and Mail Update
March 17, 2009 at 6:00 AM EDT
When Bermuda-based reinsurance company Flagstone Reinsurance Holdings Ltd. was looking around the world four years ago for a spot to house a new data management centre, downtown Halifax became the perfect pick.
With three local universities, the city offered the fast-growing company a highly educated work force, as well as the information technology infrastructure it needed, and Canada was closer to Bermuda than many other international possibilities it scouted, making business travel affordable.
Over the four years since Flagstone set up in Halifax, its staff has grown to more than 100 employees from 15, says chief marketing officer Brent Slade.
With that growth, it has almost maxed out its single-floor, 15,000-square-foot location in Scotia Square, a major Halifax office tower. If it keeps expanding as it has, Mr. Slade says he soon will run out of room. “If we continue to grow like we have, we could come to the extent of our facility by the end of the year,” he says.
When that happens, Mr. Slade may be hard-pressed to find enough available office space downtown to expand.
Thanks to an influx of international finance and IT firms such as Flagstone, as well as a lengthy and unpredictable approval process delaying new development, available office space is at an historic low in downtown Halifax.
Research firm Colliers International has pegged the vacancy rate for Class A space at 1.3 per cent, or effectively zero. This dearth of available office space has some industry insiders concerned that a lack of room could stifle the city's ability to conduct business today and in the future.
“We're at a tipping point,” says Stephen Lund, chief executive officer of Nova Scotia Business Inc.
In recent years, the provincial economic development agency has successfully lobbied major finance and IT companies such as Waterloo, Ont.-based BlackBerry maker Research In Motion Inc. and Bermuda-based finance giant Butterfield Fund Services to set up offices in Halifax.
And while the influx of new businesses to the city may slow this year because of the global recession, Mr. Lund says he's concerned that, when the economy rebounds, the city may not be able to accommodate more growth.
“If we don't do anything to create more space, our growth will stop,” he says.
Mr. Lund isn't the only one concerned. While landlords and leasing agents can accommodate requests for a few thousand square feet, there's no room left downtown for a large-scale tenant, says Tim Margolian, vice-president of investment sales for DTZ Barnicke, a real estate advisory in Halifax.
“If you wanted to put in a floor plate of 20,000 square feet, it would be virtually impossible today.”
Halifax isn't the only city hard up for Class A office space – vacancy rates in downtown Vancouver, Calgary and Ottawa are similar, according to statistics from real estate firm CB Richard Ellis.
But in Halifax the problem is exacerbated because the downtown is one of the most difficult jurisdictions in Canada to develop thanks to ambiguous land-use bylaws and powerful heritage groups that have often opposed new office towers, Mr. Margolian says.
For instance, late last year the Waterside Centre, a six-storey glass-and-brick building that could have been the city's first new office tower in 20 years, was rejected by Halifax Regional Municipality's council for not conforming to bylaws that dictate additions to heritage buildings be “subordinate” to the original structures. The proposed development had previously been approved by the city's planning department but met strong opposition from heritage groups that turned out to public hearings in large numbers. Waterside developer Ben McCrea is currently appealing council's decision before the Nova Scotia Utility and Review Board.
The combination of business growth and downtown development woes has pushed many new office developments outward, says CB Richard Ellis senior vice-president Robert Mussett. “There's lots of office space in the suburbs,” he says, referring to Halifax's two main suburban office markets, the Bayers Lake and City of Lakes business parks.
But while some new entrants to Halifax such as RIM and defence contractor General Dynamics Corp. have recently opened large offices in suburban areas, others need to be in the heart of the city.
“Our employees are young, highly educated, and cosmopolitan and they want to be downtown,” Mr. Slade says. “The suburbs aren't a good option for us.”
Moreover, because Flagstone has invested “significantly” in enhancing bandwidth and other IT infrastructure at its existing location, Mr. Slade says he's not keen on uprooting and incurring those expenses all over again.
One expansion option the company may consider is subleasing or taking over leases from businesses on neighbouring floors as they became available.
For firms eager to stay downtown, subleasing is one of the few available options, says Mr. Musset of CB Richard Ellis. That's because the economic downturn is slowly driving up sublease availability as businesses look to cut costs by shedding floor space they don't need.
“Some tenants are pulling back on their space requirements and may sublet to others who need it,” he says.
The only other option for tenants who don't want to be outside the downtown core is to hang tight, says Brian Toole, a partner with international commercial brokerage Partners Global in Halifax.
“There is space in the pipeline, but it will take a few years for it to come on stream,” he says, referring to developments such as Crombie REIT's proposed 22-storey downtown International Space, which has all the necessary permits and is currently securing leasing.
HRM by Design, a new municipal planning strategy that promises to streamline building bylaws and speed up the approval process, could make future downtown development easier.
But with at least three years to go before any new Class A office space enters the downtown, that might not be fast enough to accommodate growing firms like Flagstone, or others interested in relocating to Halifax, Mr. Slade says.
“A lack of space could ultimately prove to be a hindrance to growth in Halifax,” he says.
Special to The Globe and Mail
ELEANOR BEATON
Globe and Mail Update
March 17, 2009 at 6:00 AM EDT
When Bermuda-based reinsurance company Flagstone Reinsurance Holdings Ltd. was looking around the world four years ago for a spot to house a new data management centre, downtown Halifax became the perfect pick.
With three local universities, the city offered the fast-growing company a highly educated work force, as well as the information technology infrastructure it needed, and Canada was closer to Bermuda than many other international possibilities it scouted, making business travel affordable.
Over the four years since Flagstone set up in Halifax, its staff has grown to more than 100 employees from 15, says chief marketing officer Brent Slade.
With that growth, it has almost maxed out its single-floor, 15,000-square-foot location in Scotia Square, a major Halifax office tower. If it keeps expanding as it has, Mr. Slade says he soon will run out of room. “If we continue to grow like we have, we could come to the extent of our facility by the end of the year,” he says.
When that happens, Mr. Slade may be hard-pressed to find enough available office space downtown to expand.
Thanks to an influx of international finance and IT firms such as Flagstone, as well as a lengthy and unpredictable approval process delaying new development, available office space is at an historic low in downtown Halifax.
Research firm Colliers International has pegged the vacancy rate for Class A space at 1.3 per cent, or effectively zero. This dearth of available office space has some industry insiders concerned that a lack of room could stifle the city's ability to conduct business today and in the future.
“We're at a tipping point,” says Stephen Lund, chief executive officer of Nova Scotia Business Inc.
In recent years, the provincial economic development agency has successfully lobbied major finance and IT companies such as Waterloo, Ont.-based BlackBerry maker Research In Motion Inc. and Bermuda-based finance giant Butterfield Fund Services to set up offices in Halifax.
And while the influx of new businesses to the city may slow this year because of the global recession, Mr. Lund says he's concerned that, when the economy rebounds, the city may not be able to accommodate more growth.
“If we don't do anything to create more space, our growth will stop,” he says.
Mr. Lund isn't the only one concerned. While landlords and leasing agents can accommodate requests for a few thousand square feet, there's no room left downtown for a large-scale tenant, says Tim Margolian, vice-president of investment sales for DTZ Barnicke, a real estate advisory in Halifax.
“If you wanted to put in a floor plate of 20,000 square feet, it would be virtually impossible today.”
Halifax isn't the only city hard up for Class A office space – vacancy rates in downtown Vancouver, Calgary and Ottawa are similar, according to statistics from real estate firm CB Richard Ellis.
But in Halifax the problem is exacerbated because the downtown is one of the most difficult jurisdictions in Canada to develop thanks to ambiguous land-use bylaws and powerful heritage groups that have often opposed new office towers, Mr. Margolian says.
For instance, late last year the Waterside Centre, a six-storey glass-and-brick building that could have been the city's first new office tower in 20 years, was rejected by Halifax Regional Municipality's council for not conforming to bylaws that dictate additions to heritage buildings be “subordinate” to the original structures. The proposed development had previously been approved by the city's planning department but met strong opposition from heritage groups that turned out to public hearings in large numbers. Waterside developer Ben McCrea is currently appealing council's decision before the Nova Scotia Utility and Review Board.
The combination of business growth and downtown development woes has pushed many new office developments outward, says CB Richard Ellis senior vice-president Robert Mussett. “There's lots of office space in the suburbs,” he says, referring to Halifax's two main suburban office markets, the Bayers Lake and City of Lakes business parks.
But while some new entrants to Halifax such as RIM and defence contractor General Dynamics Corp. have recently opened large offices in suburban areas, others need to be in the heart of the city.
“Our employees are young, highly educated, and cosmopolitan and they want to be downtown,” Mr. Slade says. “The suburbs aren't a good option for us.”
Moreover, because Flagstone has invested “significantly” in enhancing bandwidth and other IT infrastructure at its existing location, Mr. Slade says he's not keen on uprooting and incurring those expenses all over again.
One expansion option the company may consider is subleasing or taking over leases from businesses on neighbouring floors as they became available.
For firms eager to stay downtown, subleasing is one of the few available options, says Mr. Musset of CB Richard Ellis. That's because the economic downturn is slowly driving up sublease availability as businesses look to cut costs by shedding floor space they don't need.
“Some tenants are pulling back on their space requirements and may sublet to others who need it,” he says.
The only other option for tenants who don't want to be outside the downtown core is to hang tight, says Brian Toole, a partner with international commercial brokerage Partners Global in Halifax.
“There is space in the pipeline, but it will take a few years for it to come on stream,” he says, referring to developments such as Crombie REIT's proposed 22-storey downtown International Space, which has all the necessary permits and is currently securing leasing.
HRM by Design, a new municipal planning strategy that promises to streamline building bylaws and speed up the approval process, could make future downtown development easier.
But with at least three years to go before any new Class A office space enters the downtown, that might not be fast enough to accommodate growing firms like Flagstone, or others interested in relocating to Halifax, Mr. Slade says.
“A lack of space could ultimately prove to be a hindrance to growth in Halifax,” he says.
Special to The Globe and Mail