By Andrew Macdonald
It could take Joe Ramia up to five years to fully lease out the 360,000-square-foot office component of Nova Centre in the heart of downtown Halifax.
That’s the word from prominent commercial real estate broker Bill MacAvoy who owns Cushman Wakefield Atlantic, based in offices on Spring Garden Road.
To be sure, Ramia has met with early leasing success, signing three leading tenants, covering about 100,000 square feet.
Nova Centre’s new tenants include the Atlantic headquarters of Bank of Montreal, international accounting giant Grant Thornton, and Australian firm Pepper Financial.
Nova Scotia Liquor Corporation is also taking out space, with a store to open during the summer.
BMO moved out of a Farhad Vladi-owned building on George Street, a Class B building erected in 1974.
Grant Thornton left Crombie REIT-owned Cogswell Tower at Scotia Square, while Pepper is new to Halifax.
Grant Thornton has taken 36,000 square feet — a floor and a half — and BMO is in the mid-30,000 square feet range, too.
“There is progress and momentum (at Nova Centre), and it is certainly changing the leasing dynamic of the Central Business District,” MacAvoy tells The Macdonald Notebook.
Crombie REIT’s loss of Grant Thornton does not necessary mean it will have to lower its rental rates, says MacAvoy.
“Not at all,” MacAvoy tells The Macdonald Notebook, noting Sobey family controlled Crombie, where Don Clow is CEO, has “made significant investments to Cogswell Tower.
“That space is highly sought after,” MacAvoy says.
At Cogswell, Grant Thornton and its 200 Halifax employees were spread over three floors, while they now occupy a floor and half at Nova Centre.
Nova Centre has a larger floor plate, the amount of rentable area on one whole floor, adds MacAvoy.
“But Crombie will have no problem backfilling the space. It’s a very attractive space at Cogswell Tower.”
Grant Thornton’s lease at the Scotia Square complex does not terminate until the first quarter of the year finishes.
As of now, the downtown office vacancy is at an historic high, hovering around 17 per cent and that will go up slightly when the Grant Thornton lease at Cogswell expires after Q1, notes MacAvoy.
“The vacancy is going to jump to high 18s, low 19s based on the Grant Thornton lease expiry,” says MacAvoy.
The historic high vacancy mirrors the market 25 to 30 years ago, when the family business of John Lindsay Sr. and John Lindsay Jr. erected the three building Purdy’s Wharf complex on the Halifax waterfront.
“When Purdy’s came on stream it was a disruptive factor, and that would go back to 1990.”
It took 10 years for the Lindsay family to lease out the second tower at Purdy’s Wharf.
What about Nova Centre? What is Joe Ramia looking at in terms of time frame for a fully leased Nova Centre?
“I think he will be substantially leased within five years,” MacAvoy responds.
The commercial broker expects a correction in vacancy rates will “come from the supply,” especially as existing Class B and Class C office space gets converted or re-purposed to other uses.
That means converting office stock to residential use, something that Louis Reznick has done with the Roy Building on Barrington Street, where he is now building a high end condo.
It also saw Jim Spatz convert the Bank of Canada office building to the just finished residential rental building, Maple.
Nassim Ghosn is building apartments where the former Discovery Centre office mid-rise was located, also on Barrington Street, and he built the Pearl rental at the site of a former office building on Rainnie Drive.
“Our (office demand) is not large enough to permit the absorption of all the new office space, so the only way the market can correct itself means that a few of the unpopulated (older) office buildings can re-purposed into residential or maybe hotel,” adds MacAvoy.
“Office is a tough play. What Joe (Ramia) has done with a Class A large office footprint, that will be highly sought after.”
Most of the downtown office stock is 40 to 50 years old.
MacAvoy admits that as a leasing broker it is exciting to see Nova Centre and the opening in 2019 of the Scott McCrea build Queen’s Marquee on the Halifax waterfront. The latter has already attracted the legal firm Stewart McKelvey from its existing perch at Purdy’s.
“It’s 100 per cent (exciting). It was same old, same old, for a long time. It is really fun for those of us who have been in the industry for a bit to do deals in the new properties,” he notes.
Tenants can do things differently in fresher office stock, “and it’s good for the economy. If we can make our businesses more productive everybody wins.”
Nova Centre is commanding more than $20 per square foot net rent, or higher, to support construction costs and land costs.
Ramia is signing 10-year leases at a minimum, which is a general rule, with 10- to 20-year rental rates for normal periods for new office stock.
The loss of BMO on the Farhad Vladi-owned George Street building has been partly cushioned by another tenant, CITCO, a financial outfit from Bermuda, which has 60,000 square feet at the former BMO-branded building.
“It’s a great building and it has really large column floor plates. Citco Group has a long term rental period in place. They are not going anywhere anytime soon,” says MacAvoy.
“The owners are not in a position where they can re-purpose the building until the Citco lease expires.”