Vancouver hot real estate markets are still hot, but they’re certainly in a period of change or transition. Our stories this week all take a look at the way the city’s many real estate sectors are evolving – primarly, housing and office markets. Once the Canadian mecca for Chinese investment, Vancouver is falling from interest in favour of Montreal, while the market slowdown is also negatively affecting sales prices. Co-ops are rising in popularity as single-family homes and condos stock remain scarce. Even the office market is not immune to changes, as developers and landlords may face the challenge of driving demand for in progress developments.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
New data from a leading Chinese real estate website has revealed Montreal will eclipse Vancouver as the top destination for Chinese investors.
The data is based on 2017 property searches on Juwai.com, the No. 1 Chinese international property portal with more than two million monthly visitors from China. The survey revealed that the United States remains the top market for Chinese investors, with Canada in fourth place, ahead of the United Kingdom but behind Australia and Hong Kong.
“ is the first time in history that Chinese buyers acquired more than C$130 billion of international real estate,” said Sue Jong, chief of operations for Juwai.com.
“The 2016 global total represents a 25.4 per cent increase over 2015 and an 845 per cent increase over five years ago. Our forecast suggests 2017 will also be one of the top three years on record.”
In order of property searches this year, the top Canadian destination cities are Toronto, Montreal, Vancouver, Ottawa and Victoria.
Total foreign real estate investment by mainland China buyers in 2017 is projected at $106 billion, according to Juwai.
The introduction of a 15 per cent foreign-buyer tax on Metro Vancouver real estate on August 2, 2016, may have helped to bounce Vancouver out of its first-place standing for Chinese real estate investors, Juwai suggests. Ontario introduced a similar tax earlier this year.
Buyers from China accounted for 17 per cent of all foreign homebuyers in Montreal this year, up from less than 10 per cent a year earlier, according to Canada Mortgage and Housing Corp. Figures released last week by B.C.’s Ministry of Finance show that foreign buyers accounted for 6 per cent of the value of all B.C. residential sales from June 2016 to May 2017. There were no details provided on where B.C.’s foreign buyers were from.
Before new real estate regulations came into place in fall of last year, a home in Surrey’s Newton neighbourhood was to be sold at an accepted offer of $1.26 millon. The buyer walked away unexpectedly, and as the market began to change, the home was eventually sold for much less. The would-be buyer has now been ordered to pay the difference, CBC reports.
The original deal was struck in May 2016, a month that saw record-breaking frenzy in the Vancouver-area real estate market.
The sellers, who were downsizing to a condo, accepted a no-subjects offer with a $60,000 deposit to buy their single-storey rancher in Surrey's Newton neighbourhood, according to the court ruling.
But by the closing date, Sept. 1, 2016, the buyer walked away.
Court documents don't say why the deal wasn't completed, and the buyer's lawyer won't comment on his client's reasons.
But that summer a key factor changed in Metro Vancouver's real estate market: the B.C. government brought in a 15 per cent property transfer tax on foreign nationals buying real estate in the region, and the seller's realtor blames that for the lower sale price.
On Sept. 2, the day after the deal wasn't done, the sellers filed a lawsuit against the would-be buyer, and soon listed their property again.
But their new agent, John Massullo, told them it wasn't likely they'd get a price anything like the May deal, according to court records.
"The real estate market in the Lower Mainland had changed significantly since [the seller] entered into the contract with [the buyer], in particular because the B.C. government had passed the foreign buyers' tax," the lawyer told his client, according to Master Leslie J. Muir's judgment.
Despite months of showings, professional photos, and several price drops, it took another five months to sell, for the much-reduced price of $910,000.
"Although this offer was less than I had expected when I listed the property for sale, the market remained soft," said Massullo in an affidavit.
The precise impact of the foreign buyers' tax remains unclear. Sales did slow after the tax's introduction in August 2016, but benchmark prices never saw anything approaching the 28 per cent price drop on this property.
Nevertheless, the default judgment awards the sellers the $350,000 price difference, plus about $10,000 in carrying costs for the property over the five months, including utilities, property taxes and hot tub chemicals.
Vancouver’s housing market isn’t the only sector facing changes. According to Andrew Petrozzi, head of research for Avison Young, Vancouver’s next batch of new office space may not benefit from the high local demand of its predecessors.
The first wave of development successfully tapped most of the expansion demands (and a desire for “cool” updated premises) from these stalwarts of the downtown office market and the growing clout of the city’s tech cluster that had built up over a decade. During that time, the downtown market only recorded the addition of the 540,000-square-foot Bentall 5 office tower in 2007 (in two phases, no less!). Most of the city’s lawyers, accountants, engineers, bankers and software engineers have moved into new digs since 2015. The next wave of development, which could start delivering new buildings by late 2019 and would continue to 2021, will not be able to count on this pent-up demand to drive their leasing programs.
The arrival of co-working juggernaut, WeWork, to downtown Vancouver’s office market in early 2017 may have a potentially disruptive impact on the traditional relationship between tenants and landlords, particularly with technology firms (which are touted as the source of much of the future demand for new office space in Vancouver). Regus’ co-working format, Spaces, also opened in Vancouver this year. The fundamental rethinking of the tenant-landlord relationship represented by these new players may reduce demand for space in the next development wave. Whether or not the appetites of a WeWork or Spaces to take on more space in these new buildings outweighs a potential reduction in demand from firms that choose to go the co-working route remains to be seen.
The scale of construction proposed in the second wave of development, which already includes more than half a dozen buildings totalling almost 1.5 million square feet and counting, will be much more reliant on demand originating from outside the local market. While many Vancouver-based businesses, tech and otherwise, continue to grow and will require additional space, the magnitude of the office development being proposed exceeds the likely requirements generated by local firms, many of whom already expanded or relocated since 2015.
While ongoing concerns with immigration policy under the current U.S. administration may lead some American firms (particularly tech companies) to open offices in Vancouver to recruit talent from around the globe and avoid U.S. visa restrictions, the nature of these operations has a transient quality that may be unwise to base a development cycle upon. A rising Canadian dollar and an end in sight to nearly a decade of easy money will also be factors that need to be considered and which were largely absent during the first wave of new development.
While the success of the recent wave of downtown office development may not be easily replicated, the next wave will represent a true step forward in the city’s evolution and its establishment as a truly global tech hub – but first steps are never easy or simple.
Buyer demand for co-op housing complexes is rising as renters look to more affordable options in the city’s tight and often times overpriced rental market. Co-op buildings are a bargain for buyers too, as they typically sell for much less than it would cost to buy or build new, BIV reports.
What’s happening is strong pricing as buyers seek properties suitable for operating as apartment blocks. While per-suite pricing for purpose-built rentals once lagged behind that of condos and co-ops, the Goodman team reports that purpose-built rental apartments sold for an average of $533,317 a suite in the first half of 2017. That compares with the Real Estate Board of Greater Vancouver’s benchmark price in June of $772,900 for a west-side apartment and $507,700 for an east-side apartment. With purpose-built rental buildings in short supply, older strata and co-op properties are a win-win: owners can capture more value by banding together than by selling their units individually, while buyers get to acquire multi-family properties for less than it would cost to build new. Some sites have future development potential that make them good long-term buys.
“Co-op buildings are generally superior to existing older rental stock, given owners have made extensive in-suite upgrades … and generally kept the property in good to excellent condition. Suite sizes are typically larger as well,” Jagger explained.
Properties zoned C-2, such as those along the Boulevard in Kerrisdale, are best suited for redevelopment.
“With city approval, a purchaser could potentially develop a condominium project with ground-floor commercial under the existing zoning,” Jagger said.
Regardless of what the developer chooses, Jagger encourages co-ops to seek legal advice prior to any sale as the deals are typically more complex than for other property types.