There is not an industry in Vancouver that particularly stands out in importance and significance to the local economy — certainly not to the same degree to how finance drives Toronto, oil drives Calgary, and tech drives San Francisco.
A recent report on the state of the local office market by Metro Vancouver Regional District reaffirms the longstanding fact that the Vancouver region is far behind in the corporate office game compared to Canada’s other major urban centres, and as a result, it is not seeing the economic and social benefits enjoyed by its counterparts.
Vancouver was a hub for large mining and forestry companies, but many of these businesses have disappeared from consolidation, relocations, and takeovers, such as the 1999 demise of MacMillan Bloedel.
Over the past decade, some of these losses have been offset by the rise of other companies, especially in tech, but none of these are powerhouses and come far from a complete offset of the losses.
“There is a fundamental fact about the Metro Vancouver office market – there are few large corporate headquarters and associated office employees,” reads the report.
“Over the past few decades, mainly due to changes in the resource sectors, which represent a significant number of the headquarter offices in the region, these businesses have closed, consolidated or relocated. Since then, the tech sector has grown, however not necessarily in the form of headquarter operations.”
The regional district’s research notes that Toronto has by far the greatest concentration of corporate headquarters with 32.6% of Canada’s top 500 corporations. This is followed by Calgary (16.2%), Montreal (15%), and Vancouver (10.4%).
During the period from 1990 and 2011, Toronto and Montreal saw losses in headquarters of the country’s largest companies, Calgary saw gains that nearly doubled its numbers from 44 to 81, and Vancouver saw some slight increases from 45 to 52.
Another set of data used by the study indicates Vancouver was the headquarters of 95 of Canada’s top 500 companies in 2014 — an increase from 49 in 2004. Comparatively, Toronto and Calgary had 254 and 132, respectively.
But there is a caveat with the growth that Metro Vancouver experienced: “Metro Vancouver led Canada in increasing its head office count between 2004 and 2014, but Vancouver’s rising head-office count illustrates that quantity is not the same as size, as few of the largest of the top Canadian companies are located in Vancouver.”
Moreover, Metro Vancouver has 25 sq. ft. of office space per resident, which is lower than Toronto at 31 sq. ft., Calgary at 49 sq. ft., and below the national average of 29 sq. ft.
“The lower amount of office space indicates that Metro Vancouver has a relatively limited corporate employment profile compared to the other cities, adjusted for population,” stated the report.
However, the regional district also acknowledged some of the region’s recent successes with attracting head offices and identified some of the region’s strengths.
“Vancouver’s apparent recent growth in attracting head offices could be a trend, building on the region’s strengths such as intellectual capital, technological expertise and access to the expanding Asian economy, and Vancouver’s location, climate and beauty,” the report states.
“Vancouver may be Canada’s priciest city in which to run a business, but some local companies still remain. Although housing costs are high and commercial property taxes are on the rise, some CEOs say the advantages offset those drawbacks.”
Attracting more companies to set up a major presence in Metro Vancouver goes far beyond merely fixing housing affordability and the high cost of living.
The report breaks down the fragmented and decentralized nature of Metro Vancouver’s economic planning and international investment attraction strategies, which are detrimental to the region’s ability to attract and retain corporate headquarters.
The region has 23 local jurisdictions and municipalities, and there is relatively little that brings them together on these fronts beyond their arbitrary municipal borders.
Metro Vancouver needs a clear regional vision and well-defined and well-executed investment attraction strategies.
Currently, the economic investment divisions of some municipal governments operate in such a way that they compete against each other for the same pool of investments and businesses; there are well-documented political divisions between business associations, business leaders, and civic leaders.
Vancouver and Surrey, for instance, have their own separate municipal-funded economic investment attraction agencies — Vancouver Economic Commission and Invest Surrey, respectively — but there is a need to pool their resources together to create “a one-stop shop to communicate comparative advantage and facilitate investment.”
This also means the adoption of an understanding and acceptance that what benefits downtown Vancouver also has the ripple effect of benefiting people who live all across the region, including the residents of Surrey.
The report describes this as a “fragment regional governance structure, which in practice has made it very hard to articulate and promote a clear vision that can appeal to local corporate decision-makers as well as to those elsewhere who might consider investing in the region.”
Other impediments include Vancouver’s poor reputation as a high-cost jurisdiction for some costs as well as the perception that Vancouver is “not a city for global business.” When it comes to housing, the region’s reputation suffers in the eyes of many businesses and current and prospective employees.
For office building developers, high land and construction costs and “excessively long and uncertain development approval processes that increase risks for projects” are more obstacles that companies face.
New office construction has not kept up with demand, and this has sent office rents upwards and office vacancy rates to historic lows of about 5% region-wide. Within the City of Vancouver, office vacancies are at 4% across the city, with downtown Vancouver at 3.9% and Central Broadway at 3.6%.
“Vancouver is facing an office space crunch with declining vacancy rates and rising lease rates,” the report continues.
“While more supply is on the way, some stakeholders are concerned that the lack of available space will push Vancouver off the radar screens of international companies seeking to expand.”
With all that said, the region still has some strengths: “a ‘Vancouver’ brand that is well recognized, a boom in the tech sector with large American companies locating facilities in Vancouver to access an international workforce via Canadian immigration policies, the region being a liveable and desirable place with many amenities, and a strong education system that fosters talent.”
Other important conditions to find success in attracting, growing, and retaining corporate offices entail world-class transportation and telecommunications infrastructure, high quality of life, availability of good education and health and financial services, and an available skilled workforce.
“To encourage further headquarter development, the best policy response is to continue to promote policies aimed at fostering a knowledge-based economy and a competitive business environment, such as investment in education and basic research, R&D promotion, and low corporate taxes,” adds the report.
“This will benefit the economy as a whole and have the bonus benefit of attracting head offices.”
The report also notes that “the probability of receiving new headquarters increases with the number of same-industry headquarters in a region,” which suggests Vancouver needs to continue to build on the growth it has seen with tech’s creative and digital sectors.
The regional district’s analysis cites other reports on the importance of headquarters for the local economy and the direct and indirect spinoffs they provide to many aspects of life in the region.
“While head offices only employ a few hundred workers, they generate indirect benefits to the local economy. Their employees are highly-skilled, contribute more to the tax base, and support innovative activities. There is also likely to be additional employment generated by related businesses in the business service industry. The majority of head offices outsource accounting, legal, and advertising services,” reads a UBC Sauder School of Business report.
“Jobs related to head office activities tend to require high skills, pay high wages and contribute strongly to tax revenues. Head office activities are innovative and innovation may generate knowledge spillovers and above-normal profits. Head offices of major corporations can be philanthropic, funding arts, education, and other community programs.”
To further emphasize on the community impact of headquarters: “Head offices act as anchors to the surrounding community by utilizing local suppliers, providing leadership and sponsorship of charitable organizations and the arts, and helping to establish business clusters of expertise and ideas.”
The report uses Seattle and Portland as examples, as major companies established in these cities “pay high salaries and create enormous wealth, which generates spinoff businesses.”
Metro Vancouver’s relatively sluggish business community would benefit from concentrations of numerous head offices, as such a cluster effect forms corporate networks, tight linkages between supplier industries and headquarters practices, and innovations from the sharing of ideas and best practices among business leaders.
“These kinds of business clusters contribute to the development of vibrant communities,” states the report.