Residential real estate is the main focus at the annual Urban Development Institute (UDI) forecast luncheon, even when non-residential builders take the stage. Workers need places to live, and if commercial and industrial space is in demand, they’re likely employing workers who need homes.
This year’s panel discussion, moderated by Jon Stovell of Reliance Properties Ltd., was no different.
“Today things are pretty quiet, but things will get better and probably sooner than we all think,” said panellist Neil Chrystal of Polygon Homes Ltd. “Our regional economy is doing very well, with positive job growth and low unemployment. It is very rare for a housing market to remain depressed when the local economy is doing so well.”
Anthem Properties CEO Eric Carlson took a similar stance, with characteristic verve.
“The economy lurches along and the market is finding its equilibrium,” he said, dismissing descriptions of the Vancouver market as a bubble. “A year or two from now rents and prices will be higher than they are today in virtually all asset classes.”
Carlson called for a new approach to housing, however, with extended rants against government policies that have boosted housing costs without increasing supply. With many developers holding off on construction in response to high labour costs that have also helped push prices beyond what consumers are willing to pay, supplies will be even more limited.
“We are coming off a period of extremely high pricing in all sectors – industrial, residential, everything,” Stovell said. “Affordability was the watchword, and I now have a sense that we might be moving from unaffordability to unavailability.”
Canada Mortgage and Housing Corp. expects up to 3,500 fewer starts in Metro Vancouver in 2019, with the total count not exceeding 21,800. The final tally last year was 23,404.
Talent trumps housing
A recurring question among commercial and industrial brokers is whether Vancouver’s housing crunch will stall corporate expansion in the region.
Responding to Jon Stovell’s comment on the shift from affordability to availability as the key issue facing local real estate markets, Beedie Industrial president Todd Yuen told the UDI forecast luncheon that access to talent trumps housing, at least for tech companies.
He pointed to the case of companies like Amazon, which is on track to have a million square feet of space in the downtown core and peak employment of about 5,300 people.
“Why not just go to Calgary?” he reported asking decision-makers at some of the companies scouting space. “You can rent the office space for a fraction of the price. Housing is cheap.”
But tech workers want to be in a world-class city, he was told. With salaries averaging US$80,000 to US$120,000, few tech-sector employees are concerned about the cost of housing.
“There was no fear whatsoever with respect to scarcity or housing pricing,” Yuen said of tech companies. “They can find their way around the housing business.”
A recent Cushman & Wakefield presentation on the costs U.S. companies face when expanding into Canada bears out Yuen’s comments.
While by no means the cheapest city, a tenant signing a 10-year lease for 100,000 square feet would save US$27 million in Vancouver – though it is by no means the cheapest city – versus Toronto. Among the country’s major cities, Montreal is the best value with savings of US$96 million (but then there’s the weather).
Where’s the space?
Commercial space is becoming almost as scarce as housing, at least in the downtown core.
Companies could save millions by moving into 100,000 square feet of space, but that space isn’t likely to be found downtown right now.
“Currently, no ‘A’ class buildings offer contiguous space of 20,000 square feet or more in the downtown core,” reports Jones Lang LaSalle’s (JLL) year-end office report.
The result has been upward pressure on rents. JLL says net asking rents have increased 10.4% over the past year to an average of $33.47 per square foot. Pre-leasing activity on new triple-A space is drawing rents into the high $50s.
JLL expects conditions downtown to tighten suburban markets in 2019.