City of Vancouver faces $22 million annual office rent bill: Will building a new City Hall cut costs?

The City of Vancouver is currently in the preliminary stages of planning a potential expansion and redevelopment of its Vancouver City Hall campus.

Public consultation is underway to gather input on three potential mixed-use campus concepts for the 8.6-acre property that includes not only the existing heritage City Hall building and grounds, but also the City-owned block to the north that fronts West Broadway — where the SkyTrain Broadway-City Hall Station entrance building is located.

The City states that for each option, a high-density mix of civic, institutional, office, retail, service, and cultural uses are envisioned, along with significant public spaces that provide the Broadway Plan area with a vibrant hub adjacent to a major regional transit hub.

“The City’s current focus for the ongoing work is to explore general site organization concepts, which will inform the Broadway Plan policy amendment for Civic District,” the City told Daily Hive Urbanized in an email.

“Future phases of the project will address the specifics about how all rapid transit infrastructure’s features will be integrated with the buildings, public realm and landscape on Civic District.”

The new City-owned office space would also serve to potentially significantly reduce the municipal government’s lease costs for privately owned office space at market rents, resulting in major cost savings over the long term. And with a wide mix of major uses beyond City Hall functions, it could also be a revenue-generating opportunity for the City.

It has long been known that the City of Vancouver leases a large amount of office space due to the existing heritage building’s spatial limitations and aging and poor seismic condition.

Approximately a decade ago, the City notably increased its leased office space after demolishing the East Wing office building of City Hall due to its inadequate seismic performance. This need for replacement space was in addition to the growing spatial requirements as a result of a larger workforce.

But exactly how much office space for City operations is leased? And what is the ongoing rental cost?

As it turns out, the figures are quite significant, with the costs seeing a steep rise in recent years.

A decade ago, in 2014, the City’s leased office space reached 306,000 sq ft at a cost of $10.67 million.

In 2016, the total amount of office space leased reached 329,000 sq ft at a cost of $11.2 million. This grew slightly to 331,000 sq ft and $11.76 million in rent in 2017, but then a steep cost escalation trend took over for the subsequent years.

The City’s leased office space reached 362,000 sq ft at a cost of $13.59 million in 2018, 423,000 sq ft at a cost of $17.34 million in 2019, 396,000 sq ft at a cost of $17.98 million in 2020, 405,000 sq ft at a cost of $19.8 million in 2021, 405,000 sq ft at a cost of $20.7 million in 2022, and 378,000 sq ft at a cost of $20.4 million in 2023.

In 2024, the City forecasts that its leased office space footprint will remain at 378,000 sq ft, but the cost of leases will increase to $22 million. This represents a doubling of the City’s budget allocation for leased office space since 2016.

So what does 378,000 sq ft of office space look like? It is comparable to the size of the newly-built 30-storey, 350,000 sq ft Bosa Waterfront office tower next to Waterfront Station or 67% of the 488,000 sq ft of office space within the 24-storey Telus Garden office tower.

But the City’s satellite office spaces are known to be scattered across Vancouver — not just within private office buildings in the Central Broadway area near the City Hall campus, such as Crossroads (above Whole Foods Market and London Drugs) and the most recent major addition of 510 West Broadway (southwest corner of the intersection of Cambie Street and West Broadway, above Jollibee) for the Planning, Urban Design, and Sustainability department, but also buildings as far as in downtown Vancouver and at Marine Gateway.

Most recently, the City divested itself of the Crossroads project office and the Woodwards’ building.

The City told Daily Hive Urbanized that the recent consolidation of office space has currently realized annual savings of over $2 million, and is estimated to result in over $2.4 million in annual savings by 2025.

Furthermore, there is a major distinction in the type of leased office space uses. Out of the 378,000 sq ft that is currently leased, about 260,000 sq ft ft is for the administrative functions of the City. The remaining 118,000 sq ft is for non-administrative functions, particularly the Vancouver Police Department’s (VPD) nearby headquarters at 2120 Cambie Street (located at the south end of the Cambie Street Bridge), along with multiple Vancouver Public Library (VPL) locations leased from third parties, leases for social service functions, shelters, and other uses.

The VPD’s Cambie Street headquarters occupies roughly 77,000 sq ft of office space within the 1994-built office building owned by the Insurance Corporation of British Columbia (ICBC). ICBC uses the remaining 53,000 sq ft of space within the building’s lower levels for a public claim centre, which the VPD previously deemed as a security concern. As well, it is not built to post-disaster standards.

The VPD’s lease for this ICBC-owned space has been repeatedly renewed over the decades, far longer than the original anticipated use of the building. The police department also operates from a secondary campus at 3585 Graveley Street, located in an industrial area near the easternmost border of Vancouver. This 2000-built, 153,000 sq ft office building, owned by the City, was previously occupied by VANOC.

The potential idea of building a brand new purpose-built VPD headquarters campus has been put on the back burner for decades. The City’s current multi-year capital plan includes minor funding for the “preliminary planning and scoping for a consolidated post-disaster police headquarters facility.”

As for the 260,000 sq ft dedicated to the administrative functions of the City, there is the potential that a significant portion of these spaces could be relocated to a new City Hall campus if the municipal government ultimately decides to pursue this path.

“One of the objectives of the planning and policy work for the Civic District is to define the development potential in the area to optimize use of these public lands. The City will then make decisions related to consolidating staff from leased spaces to the Civic District,” the City told Daily Hive Urbanized.

Colin Scarlett, a vice chairman for commercial real estate firm Colliers, suggests there could be a multitude of benefits for the City to pursue new purpose-built owned office spaces for its City Hall functions, as opposed to its current dependency on leased office space.

Office rents continue to be high due in part to Vancouver having the lowest leased office vacancy rate amongst North America’s major urban centres. Owning office space would of course remove any variability in rental rates long-term.

Between 2011 and 2024, records show the City of Vancouver would have paid over $200 million in office leases for both administrative and non-administrative functions, including the VPD’s Cambie Street headquarters.

And as a theoretical example, if the 2024 annual office lease cost of $22 million were to be maintained for the next 10 years, the City would incur another $220 million in such operating costs. This would be equivalent to the cost of covering the operating budgets of both the Vancouver Park Board ($169 million) and Vancouver Public Library ($63 million) for a single fiscal year or the combined capital budgets of the new replacement facility projects of the Vancouver Aquatic Centre ($140 million) and Marpole Community Centre ($90 million).

Although there are potential major long-term cost savings compared to continued major office leases, the downside is the high upfront capital cost of building the office space — even if the City already owns the land. This also comes at a time of historically high construction costs.

“Some public institutions will own their buildings without any debt. And so you’ve got to come up with that money somewhere. You’d have to give up a bunch of money in the short term to get a long-term benefit. And whenever we run a cash flow model for clients over the long term, the ownership of real estate generally wins out,” Scarlett told Daily Hive Urbanized in an interview.

“But the reason why organizations do it is because more times than not, they have a finite amount of capital, and the capital is better invested in their business, or in this particular case, the community, rather than investing in the real estate.”

Owning office space would of course remove the factor of the variability in rental rates long-term, and the City has access to low borrowing costs to cover the cost of construction.

Scarlett suggests that the new City Hall office space could be constructed on a larger scale to accommodate long-term capacity needs for the municipal government, allowing expansion into City-owned office spaces instead of returning to a dependency on leased space. Over the medium term, these excess owned spaces can be leased to businesses and other third-party organizations, with lease expirations scheduled according to the City’s expected spatial growth needs over time. This also provides a new revenue stream to help cover the cost of construction.

“You could design the leases in such a way that you would be able to expand into the building over time, and so that allows you total flexibility. That would be the upside for sure,” he said.

There are some local examples of this strategy playing out.

In 2015, Metro Vancouver Regional District made the strategic move of acquiring the 2014-built, 29-storey Metrotower III office tower — part of the Metropolis at Metrotown mall complex — for its new headquarters office. The regional district acquired the tower from Ivanhoe Cambridge for $205 million, with a substantial portion of the purchase cost covered by the sale of the regional district’s nearby aging headquarters for its redevelopment potential.

The regional district told Daily Hive Urbanized that as of 2023, over 28% of Metrotower III’s 414,000 sq ft of office space is leased to businesses and other third parties. These uses provided the regional district with $5.8 million in revenue in 2023, which includes several long-term tenants that were signed on by Ivanhoe Cambridge prior to the change of ownership.

“If you own your own building, you have a ton of control over your destiny, and that’s a lot of times why people will want to buy a building. You’re able to curate the experience, everything from who’s in it to what it looks like, and also the retail tenants and the whole user experience can be totally curated,” continued Scarlett.

“I have a client in Vancouver who owns their own building, and they bought it because they wanted to have total control and wanted to curate the experience.”

Vancouver is not alone in the region when it comes to new City Hall ambitions. The City of Burnaby is in the process of designing and planning a new replacement Burnaby City Hall to address the spatial, aging, and poor seismic conditions of existing City Hall buildings.

In 2023, the City of Burnaby considered relocating its City Hall from the existing campus near Deer Lake to a new location within the Metrotown district owned by the municipal government. However, the general public and Burnaby City Council balked at the estimated $840 million cost figure, as it would have not only gone towards building a brand new City Hall but also the cost of replacing existing community and recreational facilities at the proposed new City Hall tower site next to SkyTrain Metrotown Station.

Not including any replacement community and recreational space requirements, each of Burnaby’s previous concepts for a new City Hall in Metrotown outlined 355,000 sq ft of office space.

With the Metrotown move cancelled, Burnaby’s municipal government is now in the midst of planning a potential phased approach for building new replacement City Hall buildings totalling 355,000 sq ft at the existing Deer Lake campus.

Burnaby’s municipal government’s multi-year capital budget between 2024 and 2028 sets aside $300 million for the City Hall redevelopment at Deer Lake. Another major Burnaby project is the construction of a brand new three-storey, 129,000 sq ft headquarters for the Burnaby RCMP to replace old cramped facilities, with construction on the $229 million project beginning in June 2024.

Scarlett suggests that the City of Vancouver should also consider qualitative benefits, not just quantitative benefits, for its future City Hall campus vision — particularly from the organizational benefits of having more City staff under one roof, as opposed to the current scattered approach of leased office space.

“You have an opportunity to drive culture and knowledge transfer from people working together. And you can curate the experience much better if you control the environment than if you are separated into multiple buildings in the neighbourhood,” Scarlett told Daily Hive Urbanized.

“They have to push brand and culture. They have to push productivity. They have to push a sense of place, all of which real estate can be a valuable asset in.”

As a cost-cutting measure, TransLink has also recently downsized some of its leased office space. By moving Coast Mountain Bus Company’s headquarters office from Surrey to TransLink’s main corporate headquarters office building in New Westminster, the public transit authority is saving $2 million annually starting in 2024 or at least $20 million over 10 years.

Source