Last month, property management and investment company Morguard bought a 20% stake in Vancouver’s Telus Garden – a high-profile buy for the GTA-based company.
The purchase price for the class AAA building – at 510 West Georgia Street in the city’s downtown – has not been disclosed.
Green Street News sat down with Tom Johnston, senior vice president of asset management, to talk about the company’s decision to buy the building and what the deal means for its Vancouver presence.
How big of a deal was the purchase of the Telus Garden for Morguard?
It’s a significant building, obviously, when you’re buying into a 600,000 sq ft, state-of-the-art asset in one of the core markets in North America, particularly Vancouver. Property management services came along with the partial interest.
So, once you’re engaging all parts of your organization, the acquisition is more substantial. It’s core for our office group in Canada. We have other significant assets as well in other major markets, but specifically in Vancouver, it is the largest office asset that we will be involved in.
The Vancouver office market is doing better than a lot of markets in the country. Did that factor into the decision to take a piece of this asset?
Well, yes, for sure, because office is not the hottest commodity globally right now. But the core office market in Vancouver is always one of the most desirable asset classes to own in North America. The vacancy rate in A-class assets in Vancouver was quite strong going into Covid, and the market was able to maintain healthy occupancy levels all the way through Covid.
“Vancouver just doesn’t see the swings in vacancy rates that you see in other markets, and I don’t really foresee that changing in the future”
And then coming out, Vancouver is still arguably one of the, if not the, strongest core office markets in North America. Vancouver just doesn’t see the swings in vacancy rates that you see in other markets, and I don’t really foresee that changing in the future.
Okay. And what keeps them strong? Why don’t we see the swings in Vancouver like we see elsewhere?
I think one of the things historically is Vancouver is a market that’s not overbuilt, especially in the core. As you know, we’re constrained by geography and other development constraints. And it’s traditionally not a market that gets oversupplied in the core. Developers are very disciplined.
It’s an expensive market to acquire assets in, and we don’t have those large global head offices that you would see in other markets like Calgary, Toronto, Houston and Los Angeles.
How has that played out on the ground?
The development cycle that we’re coming out of is one of the largest cycles that we have seen. But the good news is there was a bunch of pent-up demand, and most of that new AAA development in the core was pre-leased to quality tenants. So we were able to absorb the majority of that new supply that’s come into the market.
Vancouver is well-diversified, so we’re not a one trick pony. We’re not relying on just financial institutions and oil and gas like other markets. We have tourism, professional and financial services, technology, insurance and, of course, real estate. There’s a myriad of industries in Vancouver that, I think, keeps our market stable.
And so going forward for Morguard in the city, you’re saying this is probably the biggest asset you’ll be involved in here. But is there anything else on the horizon for the city?
We’ve got some other exciting projects, more on the retail side. We do have some interesting opportunities that are multifamily in nature, such as Burquitlam Plaza, where we are working on our entitlements.
Not long ago a lot of people wouldn’t touch retail with a 10-foot pole, but there’s been this bounce back. Does that present more opportunity for Morguard, do you think?
I think it does, because there’s always a land play component that comes along with retail, where you can do much more than other asset classes. We’re able to do a myriad of interesting things, which might be office podium, multifamily and possibly hotel. Retail can morph into large mixed-use projects, and that’s what makes opportunities in retail interesting.
