There’s no doubt that the week’s top stories is Tuesday’s B.C. budget announcement, which included several housing measures affecting both owners and real estate investors. Office sales continue to skyrocket, as Vancouver’s tech industry footprint expands (both in size and profit) in the city’s downtown office market. Industrial and retail sectors are also seeing unprecedented demand and pricing, proving Metro Vancouver’s commercial real estate market is firing on all cylinders.
Here is Western Investor’s pick of the top real estate stories published this week.
B.C. Budget 2018: Foreign buyer tax expanded, 2% speculation tax by 2019 – Western Investor
Nearly $7 billion towards housing supply is "the single biggest investment in housing in the history of our province," says B.C. finance minister. Anti-speculation measures are the most comprehensive ever announced in the province.
The provincial government has delivered on its promise to curb speculation and invest in affordable housing in its B.C. Budget 2018 announcement.
B.C. Finance Minister Carole James announced today (February 20) the province is expanding its foreign buyer tax to the Fraser Valley, Nanaimo, and Okanagan regions. The tax will be upped from its present rate of 15 per cent to 20 per cent, effective February 21. All homes over $3 million will see a property tax increase of 2 per cent, to 5 per cent in 2019.
“[Affordable housing] starts with stabilizing the market and curbing demand,” James said.
Demand
A new speculation tax is also coming into play beginning fall 2018. The tax targets foreign and domestic speculators who do not pay income tax in B.C., including those who leave their homes vacant. The tax will begin at 0.5 per cent of assessed property value in 2018 and rise to 2 per cent in 2019.
The province also hopes to stave off speculation by closing real estate tax loopholes by requiring more compressive information regarding condo presales and beneficial ownership (sometimes referred to as ‘shadow ownership’).
"B.C.'s real estate market should not be used as a stock market," James said. "It should provide safe and secure homes for families, renters, students and seniors. That's why we're cracking down on speculators who distort our market."
A database will track pre-sale condo assignments to ensure that those intending to flip properties pay the required taxes each time the condo changes hands in the process.
Requiring additional information regarding beneficial ownership and separate, specific land registry intends to do away with offshore companies and trusts that park capital in B.C.’s housing market while obscuring their identity.
Supply
The provincial government has promised over $6.6 billion in affordable housing funding over the next 10 years. This will go towards creating over 114,000 affordable homes for purchase and over 14,000 rental units.
A $450-million student housing program will allow post-secondary institutions to borrow directly from the province to facilitate new student housing, while $734 million will go towards building support housing for women and children fleeing violence.
The budget also promises 2,500 new supportive housing units for homeless British Columbians and 1,750 units of social housing for B.C.’s indigenous people.
Avigilon closes $108M sale of downtown Vancouver office tower – Business in Vancouver
The Vancouver tech firm makes tidy profit after purchasing tower for $42 million in 2015, Business in Vancouver’s Tyler Orton reports.
Even B.C. tech companies are making hay out of Vancouver’s white-hot real estate market.
Avigilon Corporation has closed the previously announced sale of its downtown office tower for C$107.5 million, the company announced February 16.
Avigilon, which specializes in high-definition surveillance software and hardware, originally bought the tower at 555 Robson Street from Telus Corporation in 2015 for C$42 million.
The property, including both the land and the building, was valued at C92.6 million as of last year, according to the BC Assessment Authority.
Avigilon will continue to lease the office space in the building following the sale’s close, which comes the same month Motorola Solutions announced it was acquiring the Canadian tech company for US$1 billion.
The 135,000-square-foot building is nine-storeys high and sits adjacent to the C$750-million Telus Garden development.
Avigilon performed its own renovations on the tower before moving into the space in early 2016.
Office, industrial markets face low vacancy rate, tight supply – Business in Vancouver
Firing at all cylinders and priced stratospherically, Metro Van’s office and industrial markets remain among the most desirable and untouchable real estate in the city.
“Deal velocity through 2017 remained robust and will likely lead to a similar but slightly smaller decline in vacancy in 2018, particularly downtown, as the number of options grows fewer,” Avison Young reported in its own year-end office report.
Space under construction outside of downtown is two-thirds preleased, Avison Young reports, meaning absorption rates have nowhere to go but down thanks to a limited available supply.
“Supply constraints are starting to manifest throughout the region,” Avison Young says. “The temporary result is the emergence of an imbalanced market that favours landlords until new supply can be delivered.”
The result is rising speculative development.
GWL Realty Advisors Inc. broke ground on Vancouver Centre 2 at 753 Seymour Street last fall with no commitments on the tower’s 370,000 square feet of space. Reliance Properties Ltd. followed suit last week with the Offices at Burrard Place, a 146,375-square-foot tower that’s also proceeding without lease commitments.
Reliance previously sold 60,000 square feet of strata space at Burrard Place, and more recently Bosa Development Corp. achieved record pricing for 150,000 square feet of strata space at 320 Granville Street. Both projects underscored strong demand for a slice of the market, and Reliance president Jon Stovell sees an appetite for large tranches of space.
“Space to meet the growth projections of large companies currently doesn’t exist in Vancouver,” he said last week. “This is an era when developers like Reliance can build offices without any prelease agreements.”
Handsome pricing
Vacant new office space might be in short supply in Metro Vancouver, but industrial space is tighter.
CBRE Ltd. reports that 97.2% of the 1.4 million square feet of industrial space delivered in 2017’s last quarter had commitments prior to completion. Demand for space was strong enough to push average lease rates above $10 a square foot for the first time in the region’s history.
CBRE senior vice-president Chris MacCauley, who focuses on industrial properties, said tenants that need to be in the market will swallow the higher lease rates, which still pale in comparison to labour and transportation costs. He added that they increased 16% last year and expects them to increase a further 10% in 2018.
However, they’re still double what landlords in Calgary are charging. Combined with the lack of space, companies that don’t need to be on the coast will opt for Calgary.
Key sectors that could be affected include food processing, film, and fulfilment operations in the retail and e-commerce sectors. The biggest uptake in space in 2017 came from the food and beverage sector (31.3%) and building supplies (26.1%).
CBRE reports that just 23 transactions involved properties of five acres or more, underscoring the lack of large sites suitable for development. The aggregate value was $345 million, or an average of $1.2 million an acre – up 45% from a year earlier.
“Many developers and corporations are trying to either build or establish their footprint in the Metro Vancouver industrial market,” CBRE reports, and as the numbers show, they’re willing to spend handsomely to do so.
Vancouver mall sales total $600M – Western Investor
Eight Vancouver mall transactions led the way in retail investment property sales during the first half of 2017, according to a new report by Morguard.
Though sales have increased in most major Canadian centres, the retail industry will face some challenges in 2018.
The volume of Canadian retail investment property sales for 2017 is expected to hit a 17-year high, with $5.3 billion in transaction volume already reported for the first half of the year. Eight malls sales in Vancouver were recording during this period, totaling nearly $600 million transaction value. Edmonton posted the second-most mall sales, with five properties selling for a combined total of $115 million, according to a Morguard 2018 Canadian Economic Outlook and Market Fundamentals report.
Retail sales are expected to grow by 5.8 per cent in 2017 and another 2.4 per cent in 2018. Retail sales in non-anchor portions of Vancouver malls hit $924 per square foot in June 2017, nearly $150 above the national average. Ontario per-square-foot retail sales were also higher than the national average at $864. Vancouver sales increased 2 per cent over June 2016, while Ontario sales grew nearly 5 per cent. Alberta sales increased less than 1 per cent year-over-year, at $732 dollars per square foot.
“The closure of Sears Canada stores will present a more direct challenge for some owners as certain markets will be hit with a flood of new supply,” the report states. “Owners will face ongoing changes in store size, closures and space usages.”
Mall vacancy remained fairly tight at 4.6 per cent nationally during the first half of 2017, according to separate CBRE statistics. Rents during the same period remained restively stable across the board.
“Investment market performance has been relative healthy, but we expect continued moderation over the near term,” Morguard stated.
