The week’s top stories cover a range of topics, from real estate board regulation, to the popularity and increased affordability of short-term rentals for travelling professionals. Meanwhile, regular housing in Vancouver continues to rate among the least affordable in Canada on record. In Calgary, leased industrial space is being converted to strata industrial to sell space.
Here is Western Investor’s top commercial real estate stories published this week.
Corporate housing – or short-term, furnished rentals for travelling business professionals – is a multi-million-dollar sector in Canada, signifying a strength of Canada’s lodging market as a whole.
Highland Group’s annual report for the Corporate Housing Providers Association of Indianapolis offers a thorough overview of the corporate housing sector in Canada.
Providers of corporate housing serve both companies seeking to house employees and insurers requiring accommodation for displaced persons. The sector is worth $248 million a year in Canada.
The supply of units in Vancouver last year dropped faster than the decline in occupancies, which fell from 89% to 85%. This supported an 8% increase in the average daily rate to $175 from $162. This reflected the strength of the lodging market as a whole. Statistics presented by HVS Canada at last fall’s Western Canadian Lodging Conference indicated that the average daily rate in Canada increased approximately 7.3% in 2017.
Highland Group’s report identified the entertainment sector as the biggest identifiable source of demand in terms of industry sectors, at 12%. However, 25% of demand came from a grab bag of sectors and individuals. Accommodation related to insurance or emergencies accounted for 18% of demand.
The two key reasons for using corporate housing, aside from displacement, were project-specific or training placements at 31% and relocation at 30%.
Corporate housing providers typically lease condos as needed, and last year they tapped into approximately 66 fewer units in Vancouver than a year earlier. This should be good news for those concerned with housing affordability, which RBC Economics reports continued to decline during 2017’s final quarter. Among other implications, this meant more first-time buyers faced the prospect of an ongoing stay in rental units.
“Vancouver-area buyers experienced the most significant deterioration in RBC’s aggregate affordability measure in Canada in the fourth quarter,” the report stated, adding that it was no surprise that the provincial budget introduced new measures designed to cool demand and trigger the addition of units to the rentalstock.
82.5 per cent of average household’s income is now necessary to finance a Vancouver home, BIV’s Glen Korstrom reports.
A Royal Bank of Canada (RBC) study released this month ranks Vancouver’s housing market as the least affordable for any regional market ever recorded in Canada.
The costs of owning a home at today’s prices would have represented an astounding 85.2% of a typical household’s income in the fourth quarter, the bank said in its Housing Trends and Affordability report.
The report called Metro Vancouver’s rising home prices a “worrying trend,” and explained that the phenomenon prompted the B.C. government to impose new and expanded initiatives to cool the market down.
One measure was hiking a foreign buyer’s tax to 20% from 15%, with that tax being in place for more parts of the province.
Another proposed tax, the speculation tax, which would levy a tax on empty homes in specified parts of the province, caused so much unrest that the provincial government was forced to revise the proposed tax rates to ensure as much as possible that it would not be British Columbians who have to pay the tax, but rather owners of empty homes whose primary residence is in the rest of Canada or abroad.
Indeed, the wide swath of proposed new taxes in B.C. has prompted what some have started to call the beginnings of a tax revolt.
The RBC report noted that “a main objective [of the speculation tax] is to increase housing supply by ‘unlocking’ units that sit empty most of the year."
The benchmark price for a home in Metro Vancouver inched up to $1,084,000 in March, although the volume of home sales in the region has started to sputter.
B.C. government review aims to “make sure that British Columbians are effectively protected,” says finance minister.
The B.C. government is launching a review of the province’s two key real estate regulatory groups, in order to "make sure that British Columbians are effectively protected," finance minister Carole James announced April 18.
The review will examine the Real Estate Council of British Columbia and the Office of the Superintendent of Real Estate's roles in the real estate market and whether they are living up to their responsibilities.
In a press release, the minister said, “Topics under review include the appropriate structure and composition of the regulators, how they should communicate, mechanisms for resolving disputes, and how to divide responsibility for matters such as licensee qualifications and rule making.”
Minister James added, “Buying and selling property can be stressful, and people need to trust the professionals they are working with.
“Our duty as a government is to make sure the regulatory system is protecting people and functioning effectively. We’re launching a review of the province’s real estate regulators, to make sure they’re acting in the best interest of British Columbians.”
Vancouver’s PC Urban is turning a fully leased industrial complex into 111,000 square feet of industrial condominium space.
Vancouver developer PC Urban Properties Corp. has bought a fully leased industrial park in south central Calgary where it plans to convert the 111,000-square-foot property to industrial strata.
Core Business Park will be one of very few commercial condo conversions in the Alberta city. It may also signal a trend of industrial action moving to Calgary from overheated, higher-priced Vancouver.
“There’s a very limited supply of inner-city resale [industrial] condos in Calgary,” said Sean Ferguson, associate vice-president, industrial, for Cushman & Wakefield, the listing agent for the property. “Most is either newly developed and sold as a shell, without an office or on the periphery of the city.”
The 13 tenants currently in place at the 24-bay building will exit, either through early termination or by purchasing their unit, Ferguson explained. A separate investor could also buy a unit and keep the tenant in place, he suggested.
“We will work to find an amicable solution,” he said.
Tenants can choose to stay as the developer does a substantial upgrade to the two old buildings on the 5.6-acre site, which is close to major highways and downtown Calgary.
The buildings date to the 1970s and have 18-foot ceilings, considered low by modern standards.
“It’s the location that is really the key,” Ferguson said. He said the local industrial vacancy rate is around 5 per cent and lease rates are in the $10 per square foot range.
PC Urban is well known in Metro Vancouver, where it has successfully converted a number of old industrial sites into modern strata buildings.
But Ferguson said it is unlikely that the Core Business Park will see the $800 to $900 per square foot prices being achieved in Vancouver.
Core Business Park’s condo prices will range from $230 to $245 per square foot, Ferguson said. A typical unit is around 4,600 square feet.
“This is a rare opportunity for businesses to invest in their own commercial property in Calgary,” said Brent Sawchyn, principal at PC Urban. “As we’ve seen in our other commercial condo projects in Vancouver and Kelowna, it’s a move many businesses are ready to take.”
Renovations at Core Business Park will start this summer with completion scheduled for the first quarter of 2019.
Calgary’s overall industrial vacancy rate dropped to 6.5 per cent at the end of the fourth quarter of 2017, down from 7.9 per cent a year earlier, thanks largely to the transportation and warehousing industries, as well as food and health-care.
“Without question, industrial will have the most growth in terms of employment and new business opportunities,” said Casey Stuart, Calgary-based vice-president of industrial at Barclay Street Real Estate Ltd.
He said people tend to buy less land during a downturn but he’s expecting to see some increased activity this year, particularly in industrial.
“If we see an uptick in land sales in 2018, that will be a clear sign that we’re on the right path,” said Brian Gettel, president of the Network Real Estate Intelligence, an Edmonton-based real estate research firm.