High housing prices in Vancouver skew all real estate values: residential properties, for instance, are worth six times that of all the commercial and industrial real estate in the city. Combined.
According to BC Assessments, Vancouver residential real estate was valued at $186 billion in 2012, or almost 74 per cent of the total assessment roll. All business properties were a far-distant second at $50 billion, followed by recreational and non-profit land, at $10.8 billion, and utilities, worth $1.8 billion.
Rising residential values have proved a boon to both investors and city coffers.
Through what is perhaps euphemistically called a "voluntary" program, Vancouver collected $180 million last year just through its Community Amenity Contribution (CAC) program on new residential projects. The CACs are part of the rezoning process: basically the city figures what value the rezoning will add to the property and takes a cut of that - as high as 70 per cent - from the developer.
It is widely understood that if the voluntary donation - in either cash or in kind - is not made, the rezoning application is not likely to proceed.
Developers also complain that the donations are often done on a case-by-case basis, making it difficult to ascertain how much will have to be paid when planning for a new project.
Brian Jackson, Vancouver's general manager of planning and development, told a developers' meeting last year that the city is working toward making CACs more predictable, it not any less profitable.
Lease bargains
Yet, when it comes to commercial real estate - which has no CACs on new development - it could be argued that Vancouver is one of the cheapest world cities on earth.
For example, the most expensive retail lease rates in Vancouver are found on trendy Robson Street, where the highest rent paid for a storefront last year was approximately $220 per square foot. In most areas of the city retail lease rates are in the $30 to $40 per square foot range, based on annual lease rates.
But in Hong Kong's Causeway Bay the average rent for a retail space is $2,630 per square foot. On New York City's Fifth Avenue it is $2,500 per square foot and Tokyo landlords demand an average of $1,057 per square foot for space in the trendy Ginza district. In fact, on a world scale of office rents compiled by Cushman & Wakefield, you have to get down to places like Ho Chi Min City and Beirut to find retail space as cheap as in Vancouver.
The story is the same in the office sector. In Vancouver office rents for even Class AA buildings rarely top $40 per square foot and the average office rents across the city are in the sub-$25 per square foot range. In Hong Kong, as a comparison, the average office space rents for $185 per square foot. It is $106 per square foot, on average, in Paris, $85.50 in London and $75.50 per square foot in New York City. Even Calgary, with premier office rents averaging more than $54 per square foot, is more expensive than Vancouver's downtown.
Blue chip demand
This may explain why top commercial analysts are gung-ho in their Vancouver real estate forecasts.
In its annual Blue Chip Building Index, which tracks office leasing in downtown Vancouver, Jones Lang LaSalle notes that the top 10 office towers now share a 1.1 per cent vacancy rate. This is almost a 50 per cent decline since the last index was done in 2011.
According to the proprietary index the low vacancy combined with ongoing strong demand (1.6 million square feet of tenants currently represented in the market) may push the city's trophy towers closer to full occupancy before new supply hits the market in 2014 and 2015.
"The scarcity of space options in the city's top 20 office buildings, and across the Central Business District as a whole, presents an even bigger challenge for tenants than a year ago," said Gavin Reynolds, senior vice-president in Jones Lang LaSalle's Vancouver office.
Storefronts
Vancouver's retail real estate outlook is also bullish, with Oakridge Centre to double its space and about 300,000 square feet of new space coming to Southwest Marine Drive.
The overall retail vacancy rate in Vancouver's downtown is 4 per cent.
As for the overall real estate outlook, Colin Bosa, CEO of Bosa Properties, perhaps best summed up the developer consensus in a city that attracts about 40,000 new residents a year. "As long as people continue to come here - and they are - the future looks very bright," Bosa said.
from Western Investor March 2013
