The president of Mission Group believes his company’s new 20-storey mixed-use condo tower will sell out quickly, despite testing the price limit of downtown Kelowna.
Spend a few days in Kelowna and you would likely agree. Infused with outstanding beauty, young vitality, plenty of soft-collar jobs, a zero per cent rental vacancy rate and the most B.C. housing starts outside of the Lower Mainland, Kelowna is on a roll that seems to be just starting.
Ella, Mission Group’s new condo tower, is a concrete example of the city’s real estate boom. The building won’t complete for two years, but when marketing launched this fall, more than 2,200 potential buyers quickly registered for a chance to buy one of its 116 condos where one-bedroom units start at around $350,000 and two-bedrooms are in the $800,000 range.
Many of the buyers are expected to be investors, said Randy Shier, president of Mission Group, Kelowna’s biggest residential developer.
“The rental situation in Kelowna is nuts,” Shier said. ”You will get $2,500 a month for a two-bedroom all day; $1,600 to $1,800 for a one-bedroom. Even a little studio, a micro-suite, goes for $1,100.”
The Ella, build to high-energy-efficiency Leadership in Enery and Environmental (LEED) standards, and with quartz counter kitchens and plank flooring, looks more like Yaletown than downtown Kelowna, but it is just one of the city’s luxury towers that have successfully launched recently.
In all, 12 new condominium buildings are either under construction or about to start in downtown Kelowna. Concrete tower condos are selling, on average, in the $450 to $600 per square foot range, with wood-frame projects priced from $370 to $525 per square foot.
Across town, the 1151 Sunset Drive condo tower by Kerkhoff Construction completes in 2018, and has sold all but six of its 117 units, with prices from $289,000 to more than $1.5 million. Its success convinced Kerkhoff, with U.S.-based partner North American Development Group, to launch what will be the tallest buildings between Metro Vancouver and Calgary. The One Water Street development will boast 36-storey and 29-storey condo towers.
With a population of 127,800, Kelowna has seen 9.9 per cent growth in population since 2011. At $73,630, it has a higher median household income than Vancouver ($71,140), but its average home price, at $492,000, is less than half that of Greater Vancouver.
It is not only mature Vancouver downsizers moving to Kelowna, as witnessed by the large number of young workers in a city with an average age of 41.
“We have a tech hiring boom here,” explained Ryan Watters, spokesman for the Downtown Kelowna Association. Spurred by the just-opened $35 million Okanagan Centre for Innovation – and some hot startups like Club Penguin, which was bought by Disney Corp. for $350 million – Kelowna is ground zero for an Okanagan tech industry that bloomed into a $1.3 billion industry in just three years, with an estimated 262 tech companies.
The effect can be seen in the profusion of trendy restaurants, coffee shops and pubs, knots of millennials and 300 kilometres of bike lanes that now characterize the city.
While condos are the focus of bigger developers, smaller investors should be snapping up the old pre-war bungalows that fringe the downtown, says Jason Pender of JV Development Group, who has been doing just that.
This is due to Kelowna’s new RU7 zoning for downtown neighbourhoods that came into effect in January. In all, about 900 lots are targeted in central neighbourhoods. Under the zoning, detached-house owners can add from two to four extra housing units to their regular-sized lot, with four units, including a laneway house, on larger 50-foot lots.
The small lots, with houses, are selling in the $500,000 range, the larger lots for $700,000, Pender said, but the payoff from developing and selling new strata units can be huge, noting a strata fourplex can be built on 50-foot lots, he noted.
“And you can do it within a year,” he said.
This is important to any residential investors familiar with Kelowna’s history: many of the shiny new condo towers now being built are rising from the ashes of projects that were stopped when the housing market crashed back in 2008.
Commercial real estate
HM Commercial Group recommends the stability and potential of the commercial and industrial real estate market for Kelowna investors.
The industrial vacancy rate is now 3 per cent, down from 5.3 per cent a year ago, and 365,600 square feet has been leased or sold since mid-2016. Industrial strata is selling for a record high of more than $200 per square foot and prime industrial land for more than $1 million per acre.
“Older industrial property is being knocked down to repurpose the land, which has become so valuable,” noted Jeff Hudson, co-founder of HM Commercial (HM), which is affiliated with Macdonald Realty Kelowna.
Kelowna’s office market has 3.7 million square feet of space and nearly 12 per cent of it is vacant, which Hudson concedes “will take some time to absorb.”
But much of this vacancy relates to the opening this year of the Interior Health facility and the Innovation Centre, which together drew 1,700 workers downtown and left older office space vacant.
HM expects that the growth in high-tech firms will be the basis for future demand in Kelowna’s downtown office space.
The retail sector looks more immediately promising, according to an HM report, especially for developers. The retail vacancy rate is 4.9 per cent and net absorption over the past year has been 77,000 square feet. There is less than 10,000 square feet of new retail under construction, but downtown lease rates have risen to a range of $22 to $38 per square foot.
Downtown is where the retail action is. Cactus Club has opened on the lakefront with the new Kelowna Yacht Club building; the Craft Beer Market has opened a 500-seat location and Tim Hortons, Starbucks and Bean Scene are among the new or expanded coffee shops.
Kelowna’s multi-family rental apartment market may prove attractive to investors spooked by Vancouver’s high prices and low capitalization rates.
Based on recent Kelowna apartment building sales, prices are from $105,000 to $166,000 per door and cap rates are in the 4.5 per cent to 6 per cent range. The typical apartment rents for $1.78 per square foot and the Kelowna rental vacancy rate is 0.7 per cent, among the lowest in Canada. However, about 1,150 new purpose-built rental apartments have started in the city this year, compared to 481 in 2016, which may push vacancy rates higher.
Like other real estate agents, HM Group is bullish on Kelowna’s commercial market. As Hudson summed up: “The bottom line: people want to invest in Kelowna.”