The week’s top stories focus primarily on the cooling housing market in B.C. While sales have dropped, some predict the downturn is behind us and sales will pick up soon. Otherws believe the cooldown is here to stay. Meanwhile, commercial sales in the province are well above the five-year average, second only to Toronto, while Alberta is showing signs of recovering investment activity.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
B.C. residential real estate downturn “largely behind us” – despite actual sales dropping – Western Investor
Demand for homes is gradually recovering and expected to pick up this fall, asserts BCREA.
Despite the continued slide in home sales totals, the BCREA said that the market is already looking like it is recovering from the recent downturn, which it believes was largely caused by government intervention in the market, especially the federal mortgage stress test introduced in January.
Cameron Muir, BCREA’s chief economist, said in a phone interview that the actual sales totals do not take into account seasonal trends in home buying, and a much more accurate graph looks at the seasonally adjusted sales figure – a common measure of economic trends. According to the association’s calculations, the market has turned from its trough in June, and since then has seen a relative increase in activity of around 3.5 per cent, on a seasonally adjusted basis.
Muir said, “The BC housing market is evolving along the same path blazed by Ontario and Alberta, where the initial shock of the mortgage stress-test is already dissipating, leading to increasing home sales.” The Greater Toronto Area has seen a marked increase in home sales and prices over the past three months, following significant sales declines in spring, following the stress test’s launch.
The BCREA’s August figures also show there has been little to no improvement in affordability of B.C.’s home prices. Although price growth has decelerated from the past couple of years, all but one of the province’s 12 real estate boards registered an overall average sale price rise in August, compared with one year previously.
At $669,776, the province’s average August sale price was 1.2 per cent lower than one year previously. However, Muir said that this doesn’t mean that home prices are dropping. “It’s misleading, because it’s dependent on the mix of housing being sold, and the areas. As we’ve seen bigger sales declines in more expensive areas such as Vancouver, and an increase in apartments being sold compared with houses, the average prices get skewed.”
Government measures to dampen housing market are reportedly “working well”, according to a poll of selected analysts.
The frenzied housing market of the past few years seems to have largely cooled, and now a group of property analysts are predicting it will keep doing so.
Average Metro Vancouver house prices are expected to rise a median of 1.8 per cent this year, less than half the predicted 5.5 per cent in a previous forecast, according to a small, focused Reuters poll of 16 property analysts.
The region’s median forecast for next year is a price rise of 1.7 per cent rise, down from the previously predicted 3.4 per cent. That predicted increase is less than inflation, now pegged at 2.5 per cent.
When asked to rate housing affordability on a scale of one to 10, where 10 is extremely expensive, analysts put the Canadian market at six, Toronto at eight and Vancouver at nine. That was unchanged from the previous survey in June.
Sebastien Lavoie, chief economist at Laurentian Bank, said, “In Vancouver, the market takes a longer time to find a new equilibrium path due to the intended measures from the [provincial] government to ease overheating pressures. So far, the plan is working well.”
The national house prices will rise by a median 1.7 per cent in 2018, according to the analysts, which is less than the 1.9 per cent forecast in June. Home prices are set to rise another 2.1 per cent next year, and another two per cent in 2020, they predicted.
“We are going to see very modest price growth across all markets,” said Robert Kavcic, senior economist at BMO Capital Markets in Toronto. “We are seeing Toronto and Vancouver still adjusting to past policy measures and Bank of Canada rate hikes.”
Investment value is up 38 per cent from last quarter, eclipsing the five-year average by more than 100 per cent.
Commercial real estate transaction value has hit a new record high this quarter, according to a new report by CBRE Canada.
The second quarter of 2018 posted $16.5 billion in commercial transactions, up 38 per cent from last quarter’s previous record of nearly $12 billion and 105 per cent above the five-year quarterly average. Combined, investment volume for the first half of 2018 is $26.8 billion – an all-time high for a half-year period.
Transactions in Vancouver and Toronto drove the bulk of the activity, with just two sales claiming 45 per cent of the quarter's total dollar volume. Toronto-based Choice Properties Real Estate Investment Trust purchased Canadian Real Estate Investment Trust, while U.S.-based asset manager The Blackstone Group acquired B.C.-based Pure Industrial Real Estate Trust.
“It’s not surprising that investment volume was the strongest ever in Canadian history. In fact, the average deal size in Q2 was up 67 per cent year-over-year to $9.4 million, which is reflective of the size and significance of the investors in real estate today,” said Peter Senst, president of Canadian Capital Markets at CBRE Canada.
Toronto transactions accounted for a third of all sales at $5.7 billion, while Vancouver clocked an impressive second at over $3.2 billion – up 91 per cent over the five-year average.
Calgary saw $2.5 billion in transactions, led by Oaktree Capital Management’s $107 million purchase of Calgary’s First Tower office building.
Industrial outsold all asset classes, representing 37 per cent of the quarter’s dollar volume at $6 billion.
Municipality and railroad have been locked in a legal fight over the public walkway since February 2017, when talks about a new lease agreement broke down
The District of West Vancouver announced Friday that a settlement with CN Rail on public access to West Vancouver’s waterfront Seawalk is imminent.
“It’s a very favourable deal for West Van residents,” said Mayor Mike Smith on Friday.
Smith said he couldn’t confirm any details of the deal until it is approved by council, likely on September 10.
But he said the terms of the deal will involve CN dropping the legal suit in exchange for a one-time payment by the municipality which will allow district residents to continue to use the seawall “in perpetuity, I hope.”
Donna Powers, spokeswoman for the district, said progress in the dispute has “happened very quickly” after Smith became personally involved in negotiations over the past week with senior executives at CN.
Smith said he decided to get involved directly after becoming frustrated at the lack of progress on the issue.
“I just think once things get into the legal arena the only winners are the lawyers,” he said.
In a press statement released by the municipality, both Smith and Sean Finn, CN’s executive vice-president of corporate services and chief legal officer for the company, said they were pleased with the imminent deal.
In the statement, Finn praised the letter of intent with the municipality as an “important step toward a mutually beneficial resolution that ensures access in a safe manner to the Seawalk for years to come.”
Smith said Friday he expects to release the terms of the deal after it is approved by council.
Though access to the Seawalk has never been blocked, the municipality and CN have been locked in a legal fight over the public walkway since February 2017, when talks about a new lease agreement broke down.
The municipality also stopped regular maintenance work on the Seawalk while the dispute continued.
The municipality built the Seawalk 50 years ago to mark Canada’s 100th birthday.
CN holds a lease on about 1,100 metres of land over which a portion of the Seawalk is built.
In February of 2017 a branch of the railway company filed a lawsuit in B.C. Supreme Court against the municipality, asking for an injunction preventing the District of West Vancouver from trespassing on the land and seeking damages for overdue rental payments, which the municipality stopped paying more than 20 years ago.
The municipality, in turn, asked the Canadian Transportation Agency, a quasi-judicial federal agency that oversees railway operations, for an order allowing the municipality continued use of the Seawalk at no cost.
The dispute was essentially about money, said lawyers who spoke at a hearing before the transportation agency panel in October 2017.
Ian MacKay, a lawyer for the District of West Vancouver, said the railway was attempting to “hold the community to ransom” by demanding payments of $3.7 million in annual rent for a one-kilometre section of the Seawalk.
Previously, the district had offered CN rent of $12,500 per year.