Vancouver’s tech boom is helping to drive property prices higher

Walking around the new offices of Hothead Games you will see exactly what you would expect from a small, fast-moving mobile gaming startup. But then again, Hothead it is not all that small, and it isn’t really a startup.

Nearly a decade old, the newly booming, almost middle-aged tech company is nestled in Coal Harbour, an often overlooked corner of downtown Vancouver better known for its hotels, attendant tourists, and proximity to Stanley Park. Hothead has 100 full time employees here and more than twenty more in a second office in Halifax.

Touring the office space, I learn it is the former Vancouver head office of Facebook. But Facebook left it behind for a larger space in Coquitlam as, you may have heard about this, they are growing.

“They wanted space for a full sized sports field beside the office” chirps Kenny Fahlman, Chair of Hothead Games.

Hothead Games is riding a wave of success from their most recent mobile game, Kill Shot, an effort that helped drive the company’s revenue to over $35 million last year. Hothead Games has just released its successor, Kill Shot Bravo.

Hiring over 100 game developers, digital advertising experts, marketing genius’s, data analytics geeks and all the others required to get to this size would have been almost impossible 5 years ago.

But thanks to tech behemoths like the FANGs (Facebook, Amazon, Netflix and Google) plus others like Sony Pictures Entertainment, Vancouver’s already hot tech scene has been booming.

All those skilled workers needed to drive growth have to come from somewhere. Some came from the original Vancouver gaming giant, Electronic Arts, but not all. The FANGs set up shop in Vancouver for several reasons: first, they needed new markets to collect talent as San Francisco, Seattle and other tech centers got expensive; and second, they knew they could bring in foreign workers to Canada much easier than they could into the U.S.

Vancouver, in effect, became a staging area to test new employees. If they do well, voila, the visa comes through and they go south to HQ. If not, they may spend more time here finding their feet, shifting to another part of the company or perhaps even falling out of the FANG altogether.

Many of these new tech contributors come from the U.K., Ireland and other parts of Western and Eastern Europe. Russians are great coders, as Wall Street discovered years ago. The FANGs benefit from the fact that they can bring in new employees to Vancouver and get them working while the human resources group at HQ plows through the paperwork to get their U.S. work visas lined up. Vancouver, in effect, became a staging area to test new employees. If they do well, voila, the visa comes through and they go south to HQ. If not, they may spend more time here finding their feet, shifting to another part of the company or perhaps even falling out of the FANG altogether. They may go back home or find their way into a local company like Hothead or even their own startup.

This brain flood may very well become a valuable asset to Vancouver. It is well known how industries of all kinds (from the aerospace sector to movie making) tend to cluster together so they can benefit from what economists call “externalities”. This is the collective value of operating a business in a place with a depth of expertise, supply chains and infrastructure all dedicated to the same industry. The current surge in tech talent is building on what the Vancouver tech scene already had.

While the Vancouver tech scene may ultimately become the beneficiary of all this technology talent brought in to fuel growth at the big firms, other implications become apparent as well. Specifically, the market for condos and other residential real estate in Vancouver has been feeling the direct impact of this influx.

Given the big firms’ need to house a growing stream of foreign arrivals, some with families, the corporations have expanded beyond hotel rooms for temporary housing and into 5 year leases on whole floors of some condo buildings.

According to Richard Nichols, president of lender Capital Direct, large American tech giants have become very active in Vancouver.

“Corporate rentals and long term leases for condos in the downtown core have risen while vacancy rates have dropped”, says Nichols. “Given the big firms’ need to house a growing stream of foreign arrivals, some with families, the corporations have expanded beyond hotel rooms for temporary housing and into 5 year leases on whole floors of some condo buildings”. Against this backdrop of sharply rising demand, vacancy rates in the city of Vancouver have dropped below 1%, their lowest level since 2008 according to CMHC.

Those that stay here longer or families that need more space may eventually turn to detached homes, but even those are out of the reach of even the above average salaries in the tech sector. And commuting from the suburbs is less of a solution when detached dwellings there have become comparatively expensive. It is an influence in recent years that has added a layer of demand to an already hot Vancouver real estate market. But interestingly, this new demand is from “foreign buyers” that are neither from Mainland China nor absentee landlords.

As with any growth trend this one can slow down or even evaporate as quickly as it formed. But in the meantime it appears Vancouver is benefiting from bigger FANGs and tougher US immigration policy.

More Cantech Society