With a new year comes new predictions for the state of both commercial and residential real estate over the next 12 months. The week’s top stories look at updated property value assessments, predicted “subdued” housing sales and commercial real estate presenting rare, optimum market conditions.
Here is Western Investor’s pick of the top real estate stories published this week.
What do housing pundits predict will happen to the B.C. housing market over the next year?
According to Central 1 Credit Union’s B.C. forecast, the provincial housing market is expected to remain “subdued” over the next three years. This is, said the report, “driven largely by the drag of federal B-20 mortgage ‘stress-tests’, government policies to constrain demand and higher interest rates.”
However, that doesn’t mean sales will fall further, said the credit union. Although they are expected to stay much lower than 2015-2017 levels, after a weak 2018, B.C. resale transactions are predicted to rise by 0.6 per cent in 2019, 3.8 per cent in 2020 and 2.2 per cent in 2021.
“In order for there to be a deeper crash, there would need to be a global economic recession, something that throws a lot of B.C. and the Lower Mainland out of work,” said Bryan Yu, Central 1’s chief economist. “That’s not something we have in our forecast right now.”
The Canada Mortgage and Housing Corp. Housing Market Outlook largely agreed, predicting, “Overall, we anticipate MLS sales to trough in 2018 and see some recovery in 2019-20.”
The Canadian Real Estate Association’s forecast was much less optimistic about B.C. sales activity next year. CREA said that, following an overall 24.2 per cent annual decline in home sales across B.C. in 2018, resale transactions would drop in the province by a further 5.2 per cent in 2019.
The B.C. Real Estate Association went in the other direction with its sales predictions, taking a bullish stance. It said in its November forecast that sales in 2018 would total around 80,000 by the end of December, down 23 per cent from a year ago, but would then rise in 2019 by around 12 per cent to total 89,500 home sales across B.C.
Cameron Muir, BCREA’s chief economist, said, “Continuing strong performance in the economy combined with favourable demographics is expected to push home sales above their 10-year average in 2019.”
General consensus: With one group predicting a notable recovery, one a further dip and two a slight increase, perhaps we will see B.C. home sales largely remain at subdued 2018 levels through this coming year.
Home prices – B.C. and urban centres
The Canadian Real Estate Association is pegging the average sale price of a B.C. home in 2019 at $720,000 – a rise of 0.9 per cent over 2018’s figure. That’s following a year-over-year increase of 0.6 per cent in 2018 to $713,700 – despite slow sales activity.
Central 1’s forecast looked at median prices rather than averages, and said it expected the median provincial resale price to fall two per cent (or around $10,000) in 2019 to $520,000 but then see a slight increase in 2020. The credit union stressed in its forecast that no price crash was forecast.
Looking at Vancouver Island, Yu said, “I think the market in Victoria and the rest of the Island is still quite solid. But prices have essentially flat-lined.” In the capital region, median resale prices are expected to edge up in 2019 by 0.3 per cent from this year to $588,000 (following a 6.1 per cent annual increase in 2018).
However, prices are expected to rise in Island communities that are attracting retirees, Yu said. Overall on Vancouver Island, Central 1 expects the median residential resale price is set to increase next year to $465,000, up 2.2 per cent from 2018, the report predicted.
For Metro Vancouver, Central 1 had a different prediction. “The expectation is that we will see about a few per cent drop-off, which will bring us down to $1.2 million. It’s still very high for a lot of households, for many it will be out of reach,” said Yu. “But we will also see a decline in the condo market, which is clearly looking at higher supply levels.”
The RE/MAX 2019 Housing Market Outlook similarly predicted that Metro Vancouver’s average home sale price would see a drop of three per cent in 2019 compared with 2018, due to the “low absorption rate.” This, said the brokerage, will follow a slight increase in the average home sale price across 2018 of two per cent, compared with 2017, to $1,049,362. A subsequent three per cent decline in 2019 would take that average price down to $1,017,881, which is slightly lower than 2017’s average price but still well above 2016 prices.
The Royal LePage Market Survey Forecast predicted that the median aggregate price of a home in Greater Vancouver would remain fairly level next year, rising a modest 0.6 per cent in 2019 compared with 2018, to $1,291,144.
Randy Ryalls, broker and manager of Royal LePage Sterling Realty, said, “The [mortgage] stress test, coupled with provincial tax policies, will continue to affect the real estate market in 2019. The possibility of rising interest rates will also keep some potential buyers on the sidelines as they wait to see how higher rates impact the market. For potential buyers whose purchasing ability is not limited through mortgage regulation or financing, the buying opportunities in Vancouver are excellent.”
Metro Vancouver commercial market swaggers into new year with rare confluence of low vacancies, high prices and strong development.
Metro Vancouver’s commercial and industrial real estate sector is coming into 2019 with arguably the best market conditions in Canada. It is witnessing a rare confluence of among the lowest vacancy rates in North America, record high prices and sustained development. While total sales dipped in the third quarter of last year from the previous quarter, sale volumes barely budged.
“It is a historical time for Metro Vancouver’s commercial real estate,” said market analyst Andrew Petrozzi of Avison Young’s Vancouver office.
Vancouver’s downtown office vacancy rate is experiencing record-high prices as leasing costs also nudge all-time highs, even as a rush of new construction continues.
There is 1.6 million square feet of new offices under development downtown, but most of the space is already claimed.
This includes the 1.1-million- square-foot redevelopment of the old Vancouver post office on West Georgia, where 60 per cent is pre-leased though ground has not been broken, and 400 West Georgia, where Spaces has already claimed one-third of the 375,000-square-foot Westbank tower.
Vancouver-based mobile game developer Kabam has pre-leased 105,000 square feet of office space at Vancouver Centre 2 (VC2), which is currently under construction by GWL Realty Advisors.
Kabam will be the tower’s lead tenant, leasing close to a third of the building’s 345,000-square-foot floor space across seven floors. The 33-storey building is currently under construction at 753 Seymour Street with completion expected in 2021. “We are confident that VC2 will be fully leased prior to completion,” said Geoff Heu, vice-president, development, with GWL.
Commercial agency Devencore notes that vacancy rates for all office classes in downtown Vancouver have fallen to 4.5 per cent, down from 5 per cent a year ago. Class A office vacancy rates are even lower, at 3.9 per cent. At the same time, Class A average gross rents are continuing to climb with rates exceeding $51 per square foot.
“The market is showing no signs of slowing down in terms of rental rates. With various developments underway, but no major new office buildings delivered to the market until 2021, tenants with upcoming leases are competing within a very tight market,” said Jon Bishop, executive vice-president and managing principal of Devencore’s Vancouver office. “We are seeing trends with large space users pre-leasing new AAA-class office space slated to be delivered in 2021 and beyond. In the meantime they are utilizing flexible swing space to hold them over until their new offices are completed.”
Across Metro Vancouver, an all-time high of 21 office buildings are under construction that will deliver 3.5 million square feet within the next five years – and suburban activity is outpacing downtown construction by a ratio of two to one, noted Jason Marriott, vice-president of office properties with Lee & Associates.
A trend to commercial strata is surging despite nosebleed-level prices. Crestpoint Real Estate Investment paid $1,000 per square foot for a 19-storey office tower at 800 Burrard Street last year. Earlier in the year, Bosa Development sold pre-lease space at a new tower ascending on the northern edge of downtown at an average of $2,000 per square foot.
B.C.’s total real estate value is more than $1.99 trillion, up 7.45% from last year, says B.C. Assessment.
The total assessed value of more than two million properties in B.C. is just over $1.99 trillion, which is 7.45 per cent higher than one year ago, B.C. Assessment announced January 2.
However, value declines and increases vary by municipality and depending on property type. In the single family market, values ranged from an overall decline of 12 per cent in West Vancouver, and four per cent in Vancouver and North Vancouver, to a rise of 14 per cent in Pemberton, 12 per cent in Gibsons and 11 per cent in Whistler.
For strata units, virtually every municipality saw overall property values higher than last year, including Vancouver and West Vancouver, which saw the most modest total-value increases in the Lower Mainland, both up six per cent overall. Whistler saw the highest overall condo increases, with its total value up a whopping 23 per cent (more municipal breakdowns here).
The total values are assessed as of July 2018, and don’t take into account any price declines that may have occurred since then.
The top six highest-valued properties in the province saw exactly the same ranking as last year, and there was just one newcomer in the top 10 (3489 Osler Street, Vancouver, ranked ninth). As last year, nine of the top 10 were on Vancouver’s West Side.
Lululemon co-founder Chip Wilson’s Kitsilano home remained by far the highest-valued property, at $73.12 million – down 7.25 per cent from 2018. The sixth-placed home at 4743 Belmont Avenue is that of philanthropists Joe and Rosalie Segal, which was listed in 2018 for $63 million, but is now valued $37.7 million.
Of the nine properties that also appeared in last year’s top 10, only one has gained in value in that time – third-placed James Island, a private Southern Gulf island.
Industrial properties in urban areas in Greater Vancouver are seeing the the highest potential increase in assessment value.
While single-family homes in pricey neighbourhoods are seeing a dip in BC Assessment values, commercial properties have increased across nearly every region – with industrial values rising as much as 55 per cent.
Urban commercial properties in Greater Vancouver are seeing increases of up to 45 per cent from 2017, while rural commercial parcel are seeing value changes anywhere from -10 per cent to 25 per cent. Light industrial will see the highest increases of more than 50 per cent in both urban and industrial areas.
In the Fraser Valley, commercial properties increased in value up to 35 per cent in urban areas and as much as 40 per cent in rural areas. Industrial properties saw a more modest increase of up to 15 per cent.
Vancouver Island commercial and industrial properties both saw increased in the zero to 25 per cent range.
Okanagan commercial differed over 2017 from -5 per cent to 20 per cent in both urban and rural areas, while industrial properties across the board increased from zero to 20 per cent.
Urban northern B.C. commercial and industrial properties saw the greatest potential value decrease of 15 per cent and 30 per cent, respectively.
B.C. property owners will be receiving their 2019 assessment notices in the mail over the next week. They can also be accessed online now. Values are assessed as of July 1, 2018.