Weekly Buzz: Alberta economic reboot and Vancouver real estate price drops

Western Canada's top commercial real estate stories, featuring coverage Edmonton's recovering economy and Vancouver residential and recreational price declines

By
Western Investor
June 15, 2018





Cabin cottage deck chair

 

The week’s top stories show that while Edmonton is showing signs of economic recovery leading to an increase in real estate sales, Vancouver’s market is slowing. Sales of Greater Vancouver homes and B.C. cottage properties are down, along with benchmark prices. But where are both markets going from here? Read on to find out.

Here is Western Investor’s pick of the top stories published this week.

 

Edmonton starting to fire all fossil-fuelled cylinders – Western Investor

From housing to industrial and mega petroleum investments, capital city is leading Alberta’s recovery, with condo sales up year-over-year.

Sales of condo apartments are up 16 per cent in Edmonton this year compared to 2017, commercial real estate sales are running at $100 million per month, a flashy new museum is set to open, a multibillion-dollar petro project is highballing ahead and a light rapid transit line extension is being built to help carry the capital’s recovery.

Four years after a slump in oil prices triggered an Alberta downturn, Edmonton could be the flag-bearer for its turnaround.

A cue is in the multi-family market, which has struggled to gain traction amidst a condo oversupply and slower sales. Demand was recovering last year, but the mortgage stress test and higher interest rates cooled first quarter sales, according to research firm Urban Analytics.

Despite these challenges, year-over-year sales of multi-family homes increased 16 per cent, a sign Urban Analytics sees as increasing confidence among buyers in the housing market and Edmonton’s economy.

It doesn’t hurt that some analysts, including the Bank of America, are predicting that Brent oil prices, an industry standard, could be flirting with US$100 per barrel as early as next year. Global oil prices have crested above US$70 a barrel this year so far.

The confidence is manifested north of Edmonton as construction of a $3.5 billion petro project hit high gear this year.

Inter Pipeline’s Heartland petrochemical complex, which will turn 525,000 tonnes of propane per year into polypropylene pellets, is aiming to complete by 2021.

The project is benefiting from a current lack of major project development in Alberta, which results in a favourable engineering, procurement and construction environment, including availability of skilled labour, Inter Pipeline said.

Civil construction and fabrication activities are ongoing, and the installation of support structures and foundation work has begun.

Major contractors include Honeywell, Fluor, Kiewit Construction Services, Grace UNIPOL and Linde Engineering.

Approximately $125 million of capital was invested in the project during the first quarter of 2018, with a total 2018 capital plan of approximately $700 million.

Investment

The confidence is also seen in commercial real estate investments. In the first quarter, sales of commercial real estate – for deals worth $1 million or more – jumped 32 per cent from the same period in 2017, according to Barclay Street Real Estate.

The $375 million in total dollar volume was down from a year earlier, but the first quarter of 2017 included the “surprise” $80 million sale of four Dream Office Real Estate Investment Trust office towers, Barclay noted.

The big mover this year is the industrial sector, which accounted for $93 million in sales volume in the first quarter, up 89 per cent from a year ago. Sales of industrial properties doubled.

[Western Investor]

 

Doubt cast on forecast of cottage price drop – Western Investor 

A Royal LePage Canada report claims major price reductions of B.C.’s recreational homes has been challenged by local realtors and sales statistics.

The annual Royal LePage Canada Recreational Property Report forecasts B.C.’s cottage country will see a 2.8 per cent drop in prices this year due to the province’s new speculation tax on secondary homes. This compares to the report’s projected 5.8 per cent increase nationally in recreational home values this year compared with 2017.

“With Canada’s fastest growing economy, British Columbia’s vast and varied recreational regions might be expected to lead the country,” said Phil Soper, president and CEO, Royal LePage. “That will not be the case in the near-term as new taxes aimed specifically at recreational property owners are expected to weaken markets across the province, driving would-be purchasers to invest elsewhere.”

According to the report, the biggest price tax-driven price drop will be seen on the Sunshine Coast, where Royal LePage expects waterfront properties to decline 9.1 per cent and non-waterfront houses to fall 8.3 per cent in value. The report also forecasts oceanfront prices in the Comox Valley to drop 5 per cent this year.

But the Sunshine Coast, like the Comox Valley and most of rural B.C., is not subject to the speculation tax.

“I don’t agree with those [price] forecasts,” said Bruce Lasuta, a veteran Royal LePage agent in Sechelt on the Sunshine Coast. He said the Sunshine Coast is experiencing one of the strongest markets in memory.

Sunshine Coast detached house prices have increased 7.9 per cent since the speculation tax was introduced in February, according to the latest data from the Real Estate Board of Greater Vancouver. This compares with 0.1 per cent increase across Greater Vancouver in the same time frame.

In the past four months, the 225 detached house sales on the Sunshine Coast – population 25,000 – were higher than in New Westminster, South Delta or West Vancouver, all of which have much higher populations.

The Vancouver Island Real Estate Board reports that oceanfront home prices in the Comox Valley in the first four months of this year were up 20 per cent from the same time in 2017, and non-waterfront houses have soared 14 per cent in value in the same period. “We are not seeing a slowdown,” said a board spokeswoman.

[Western Investor]

 

Virtually adding real value to commercial real estate – Western Investor

Virtual reality allows fine-tuning of a project from the construction site to the finishing details – and the marketing, making it a valuable asset for commercial real estate.

A cutting edge-tech tool that sounded like pure science fiction only a few years ago, virtual reality (VR) and augmented reality (AR) are rapidly becoming the de facto standard in real estate marketing.

VR is evolving so rapidly that it seems the construction industries are discovering new possibilities almost daily.

Dogu Taskiran, CEO of Stambol Studios, believes the health sciences will become one of VR’s largest markets. Stambol Studios is the company behind a virtual depiction of Surrey’s Health and Technology District, an eight-building campus located in the city’s new downtown.

“You can’t showcase an entire district when there’s only one building complete and a second one just started – which was the case when we got involved in 2017,” he said. “We built an app that encompasses the first five buildings – the architects haven’t designed the final three yet or we would have included them as well.”

Since any environment can be replicated in the virtual world, Jamie Henry from Draft on Site Design Studio, said hospitals and medical training facilities are just one example of companies potentially saving hundreds of thousands of dollars by eliminating the “if only we’d realized this ahead of time” syndrome.

“We can create a virtual operating theatre where doctors can walk round the space, use the equipment to make sure every piece of equipment fits and is located in the correct location.”

Opened in May, the company’s new office will have a state-of-the-art, 35 by 35-foot VR studio where clients can experience anything from a studio condo to an entire university campus.

“And think about how a fitness facility could use VR to differentiate themselves,” Taskiran added. “Their clients could take part in the Tour de France or an IronMan marathon. It makes fitness fun and adds value without taking up extra space.”

David Li, co-founder of uForis VR, said virtual reality’s ability to completely immerse participants into an environment is going to become indispensable as a tool for interior designers in commercial real estate development, right down to the type of natural light a building will receive.

“For example, a gym might want morning light to be more inspiring while a pub with a patio might need more afternoon and early- evening light to attract the after-work crowd. Using virtual reality, we can dial it in as specifically as a certain day to see what mood the natural light will create – a big advance on guestimating the natural light a south-facing location on a slope would receive.”

Now under construction in Chilliwack, Molson’s newest 450,000-square-foot brewery began life in VR where senior management were able to weigh in on how the structure’s systems integrated – or not.

“It gave the team an opportunity to identify areas that could be improved and confirm details that worked,” said Bill Tucker, CEO at Omicron. “For example, on paper or another 2D representation, it could appear there’s plenty of space to move product along a corridor. But when you ‘walk’ through that corridor, you might discover it’s actually not quite wide enough.”

Many in the multi-family marketing sector have already embraced VR. “Presentation centres are costly to build – easily $200,000 to $300,000, even more for a high-end project,” Taskiran noted. “That’s an investment with a limited lifespan and is only available to consumers during certain hours. With virtual reality, you have an open house available to anyone, anywhere in the world. It’s accessible 24-7, costs a fraction of the price and can be updated on the fly.” As a bonus, if a Vancouver developer decided to open a second presentation centre outside the Lower Mainland (or vice versa), there’s no expensive second scale model required—in fact, there’s no expensive scale model required, period.

[Western Investor]

 

More signs point to a real estate sales slowdown in the province – Business in Vancouver

Several reports in the last week point to investors seeking breathing room, which means a break, if not a brake, for the market, Peter Mitham reports.

“Private, institutional and government purchasers were all active in the first quarter, an indication that confidence in the market remains strong, and from an array of stakeholders,” Paul Richter, director of data solutions for Altus, said in announcing the results.

Altus tracks sales worth $1 million and up. The quarter’s biggest sale was the $501 million deal Mesirow Financial Holdings Inc. struck for the Gateway Casinos & Entertainment Ltd. portfolio.

All told, 480 sales totalling $2.9 billion occurred in the quarter, down from 498 worth $3.4 billion in the same period a year ago.

On the residential side, the benchmark price for housing in the Real Estate Board of Greater Vancouver sales area rose just 0.2% in May 2017 versus the previous month, to $1,094,000. This was 13.1% higher than a year ago. The rate of change was the least since January 2017, when the benchmark price dropped 0.2%.

Nevertheless, while May sales dropped 35% from a year ago, sales volumes were up 9.8% from April. This was the fourth consecutive month of increasing residential sales. It was also the highest sales tally in the region since November 2017, when 2,795 properties sold.

Average prices for recreational properties will decline 2.8% in 2018, according to Royal LePage, from $546,444 last year to $531,333 this year. A surge in listings will push prices lower, according to John McKenzie, an agent with Royal LePage Sussex in Sechelt on the Sunshine Coast.

The Sunshine Coast is expected to see the greatest decline in recreational property values of any area in B.C., with drops of 11.1% for condos, 9.1% for oceanfront properties and 8.3% for all others.

“There’s a slowdown coming,” McKenzie said.

However, he downplayed the impact of the speculation tax announced in the provincial budget set to take effect this fall. While the official report suggests it will prompt many homeowners to sell secondary residences, McKenzie says it’s not likely to scare buyers off.

“I don’t think they’re going to help things, but I don’t think they’re going to scare anybody off,” he said. “With the changes that they made, we’ll probably be fine.”

[Business in Vancouver]


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