A rapidly increasing population drawn in by a recent real estate boom has positioned Kelowna as a plentiful investment option.
A new second quarter Canadian cap rate report from Colliers International turns the spotlight on B.C. interior’s largest city, hailing Kelowna as a next great development hub. With a commercial market that’s less competitive than Vancouver’s current feeding frenzy, senior associate and valuation expert for Colliers Nathan Kurjata believes now is the optimal time to snap up Kelowna investments.
“High demand is being driven by population and job growth in the region, as well as the fact that returns investors are able to achieve are still relatively higher than those in the nearby Vancouver market,” Kurjata’s report states.
Western Investor recently named Kelowna one of the best landlord markets in Western Canada, with per-door rates of between $85,000 to $90,000 for older rental buildings and capitalization rates nearing 6 per cent. The benchmark price for all rental stock was $312,000 as of the beginning of 2017.
In contrast, rental market experts at The Goodman Report places Greater Vancouver’s per-suite value for the first half of 2017 at $408,413 with a capitalization rate of only 3 per cent.
There are presently 1,900 multi-family projects under development in Kelowna’s downtown core. Housing starts in the city grew 71.5 per cent from 2015 to 2016. The new multi-family stock is expected to housing over 4,300 residents over the next five years, which is on pace with the city’s healthy annual population growth of over 3.1 per cent.
Demand in the city’s industrial market has pushed down vacancy to 2.5 per cent – one of the lowest in the country. Vancouver’s Q2 industrial vacancy rate was 3 per cent.
“Low vacancy continues to characterize the Kelowna industrial market which has resulted in an influx of new projects since the end of 2016, primarily on sites being redeveloped or repurposed,” the report states.
Kelowna’s retail trade is the top employment sector in the region as more young people migrate to the city. Retail real estate currently draws the highest cap rate of all commercial sectors, with a high of 6.75 per cent.
In all other sectors, Kelowna continuously trends higher in returns than Vancouver (see chart below).