Com Condo Sales Rising

Tuesday, April 3rd, 2012


Commercial condos – sometimes known as “com condos’ – are taking hold across Metro Vancouver, according to Avison Young and other real estate professionals.

In Richmond, strata sales dominated the industrial market last year, Avison Young reports, with most of the buyers being owner-occupiers looking for small, “next generation” space. Last year, 96 strata industrial sites were sold in Richmond, worth about $91.1 million.

Meanwhile, buying office space as strata, rather than leasing, is becoming a major market push in Surrey – where office vacancy rates are at six-year high – led by the success of a new 65,000-square-foot office tower in South Surrey.

Realtors close to the action say strata office space increasingly makes good sense to developers, lenders and owner-occupiers. Investors, not so much.

“We have the Grandview Business Centre 95 per cent sold out of strata office space,” said Gord MacPherson, senior vice-president of Re/Max Commercial Advantage, referring to the Elkay Developments Ltd. project in South Surrey. 

The strata space at Grandview is selling for around $350 per square foot, and the typical office unit is 3,000 square feet, according to MacPherson. As of press time, there was only one unit left unsold.

All of the strata buyers have been owner-occupiers, not investors. MacPherson said one key reason is the availability of low mortgage rates. “Banks are willing to lend at rates under 4 per cent for five-year terms for businesses buying their space,” with some highly qualified owners even allowed 100 per cent financing.

Selling space rather than pre-leasing can prove a boon to developers, he explained, since developers need to have up to 30 per cent of space pre-leased before they can achieve construction financing. But Grandview Centre had one-third of the space pre-sold quickly, which gave lenders a “level of comfort,” MacPherson explained.

One floor of the Grandview Business Centre is leased to Royal Bank at $21.25 per square foot net, a rate that may make investors take note.

But investing in strata space has limitations. First of all, lenders are reluctant to provide investor funding without substantial down payments, often as high as 35 per cent, MacPherson explained.

Also, investors must then contend with finding and keeping tenants in Surrey, where office vacancy rates have risen to 8.8 per cent.

MacPherson notes that Circadian Developments is now pre-selling strata office space in its Boulevard Tower, a 160,000 square foot building in Surrey City Centre. 

“I can see the office strata trend growing,” said MacPherson, who will be starting pre-sales soon on a new 70,000 square foot Croyden Business Centre adjacent to Grandview Business Centre. “Owners expect to see future appreciation of the asset and they like the security of knowing what their long-term costs are.”


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