By Andrew Macdonald
In 2018, Joe Ramia will bring online 300,000 square feet of new office space in Halifax’s central business district at Nova Centre in Downtown Halifax.
That is one reason developers are now concentrating on converting office space into apartment and condo projects.
To understand the effect of Ramia’s new office space, this week I spoke to longtime developer John Lindsay Jr., who is also a major owner of warehouse space in Burnside and its third largest industrial landlord.
In 1985 and in 1990, Lindsay built the massive three-building Purdy’s Wharf complex, which took about 10 years after completion to fill with office tenants.
One thing Purdy’s Wharf benefited from—but which Ramia does not enjoy—was office tenancy from regional-based headquarters for international and national corporations based in the U.S. and Toronto.
“The first phase of Purdy’s was absorbed in two years. The second phase at Purdy’s and (the 1995 construction of) Summit Place (on the Halifax waterfront) put the new office space over the top,” recalls Lindsay.
“It put it out of balance. And the 1990 to 1996 recession, which particularly impacted commercial real estate, meant nothing happened in the marketplace. The situation was that it was overbuilt, but during that 1990s recession the fundamental change started in the office market, which has not stopped right through to today.”
He says office space usage started falling in the 1990s, declining in a percentage basis, “and the percentage that disappeared (was a demand) for smaller offices.”
Older buildings from the 1970s and ’80s had a lot of smaller office floor spaces where people had offices for themselves. That started to disappear in the 1990s, partly because the advent of the internet allowed people in smaller offices to work from home offices, Lindsay tells The Macdonald Notebook.
“People now can work effectively from home, and some of the residential home size increase is that we’ve added a room or two to every house because now every home has to have an office,” says Lindsay.
That is why offices being built today offer larger office floor plans.
“So, Joe (Ramia) and Nova Centre will fill up. But, the worry is that it is a new product and new product is fundamentally different than older product,” adds Lindsay.
“The density that you can put in for square foot in new office space is substantially higher than you can put in old office stock. That is a fundamental part of the new office layout — it is quite open and it is quite dense,” he tells The Macdonald Notebook.
Ramia could reach total absorption by attracting finance and other professional firms and the remaining tenancy base of downtown, which needs to be in the city core.
“But what won’t happen (for Ramia), is that there used to be corporate regional offices in downtown, including insurance offices, who were always in the downtown,” he says. “Both of those groups have moved out. The finance in the downtown is offshore businesses in insurance or the Bermuda accounting firms.
“The number of people who want or need to be downtown is now lower in Halifax than in all of the other major cities. It shows up in the rental rates. There is no difference in rental rates between downtown and suburban Class A office space,” Lindsay notes.
“What you are going to see is people in downtown move up to Joe’s building and to RBC Waterside and Scott McCrea’s (proposed) Queen’s Marque project” on the Halifax waterfront, which has a new office space component.
That will come at the expense of 40- and 50-year-old Class B and C buildings in the downtown core, he says.
“I saw a statistic yesterday that the Class B and Class C space and the Class A space (built more than 25 years ago), represents 70 per cent of office space in the downtown,” adds Lindsay. “Of the Class A space, more than 70 per cent is older than 1990 construction.”
Nova Centre’s offering has more developers doing apartment and condo developments in the downtown.
He says it is different than other major Canadian cities where there are compelling reasons to be in downtown Toronto or Calgary.
“They have to do with a really dense network of customers and suppliers and operators to be in a related industry — finance in Toronto and oil and gas in Calgary,” he adds.
“And people there want to be around each other, not just for company ego. But employees move between the companies; they also want to be able to have lunch with each other and network, to know what is going on. And they want to be able to have friends so they can move to their next job.
“It is incredibly important. It is incredibly dense, local and human,” in downtown Toronto and Calgary,” Lindsay says.
“I built and leased out Purdy’s Wharf in an expanding regional headquarters market. And a lot of the growth that expanded Purdy’s was regional headquarters like Canada Post, IBM, National Sea Products, and regional HQ for the banks.”
But in the 1990s, Halifax saw a shift to de-regionalization, with a move to head offices in Ontario and just smaller regional offices left across the country.
“But we did grow big business services centres, and these have been the engine of growth in terms of occupancy. They are big users,” he says.
“They are not call centre jobs, although there is a lot of phone work done. They are professional business services, but not corporate regional offices.”
Over the last 20 years, Halifax downtown has lost regional corporate offices such as Maritime Life, MT&T and Emera.
Lindsay says previously dedicated downtown tenants are now shopping for office space in suburban markets across Halifax Regional Municipality.
“And in the past 10 years, the absorption of suburban office space has been like 170,000 square feet a year, while the absorption of downtown space has been minus 6,000 square feet a year,” he says.
Growth over the last 10 years has been in the suburban office markets “because in Halifax if you don’t have a compelling reason to be part of an office cluster, then you are going to take the most effective cost and effectiveness for your employees, including office proximity to where they live, and lower cost margins.
“It’s not a ‘build in the suburban market and they will come’. That is because people want it”.
He says another reason suburban office is now more popular than downtown offices is because of the “aggravation in driving into the downtown core, with motorists fighting the bridges, fighting Bayers Road, fighting Bedford Highway, and fighting this and that,” he says.