The week’s top real estate stories focus primarily on industrial real estate impact on Vancouver and Calgary markets. While industrial pricing continues to price out small business in Vancovuer, industrial strength in Calgary is signalling recovery in the city’s commercial real estate sector. New developments in the Lower Mainland are also making news, from timber construction to last days of a Vancouver heritage church.
Here is Western Investor’s pick of the most buzz-worthy commercial real estate stories published this week.
Vancouver’s independent garages disappearing amid skyrocketing industrial land prices – Vancouver Courier
Six auto repair shops from Cambie to Kingsway are going under, or moving elsewhere due to rising prices.
Auto Repairs R “Wee” owner Wee Wong has banked on the auto game his entire adult life. It’s afforded him home ownership in Vancouver and helped him raise two sons, who in theory, will take over the shop once Wong calls it a day.
But what kind of business climate will await them?
“In 10 or 20 years, don’t be surprised if I might be the only shop in town other than the big dealerships, Canadian Tire and the big corporations,” Wong said. “I’m telling people that right now.”
Wong has been on Kingsway between Knight and Fraser streets since 1998. He splits the lot with Stan’s Transmission, which has been in operation since the late 1960s. Both business are being forced to move in the coming months due to redevelopment.
The two garages take up about 8,000 square feet of space, and according to Stan's owner Jim Lasher, the land has changed hands three times in seven years for $3.5 million, $7 million and $9 million.
Wong’s rent has more than doubled in 20 years, to the point that he’s paying close to $8,000 for 2,500 square feet. His business will leave Kingsway in May for a smaller location on Victoria Avenue, where Wong owns the land and has invested $350,000 in moving and renovation costs. Stan’s Transmission moves to a new location in south Vancouver this summer, where a 15-year lease has been secured.
“Whether you live here or work, it’s really tough. And we’ve got a good business, too. But every time you turn the landlord wants to raise the rent — it’s like, ‘Holy shit man,’” Wong said. “You’re working so hard and around the middle of the month, you look at everything and we’re doing really good, working really hard. But at the end of the month, the money is gone.”
Like Chang, Lasher has worked on vehicles for close to four decades. He pegs the relocation costs to South Van to be around $150,000 and yet still considers himself lucky — Lasher is confident his customers will follow him and no jobs are being lost.
It’s the Max Changs of the world, and other neighbourhood-specific shops, that Lasher worries about.
“My competition is disappearing also — they’re being forced out,” Lasher said. “I’ll be in a good position if I can stay anchored in Vancouver but, unfortunately, every day and every week that goes by, it’s getting harder and harder to find locations within the city.”
Lasher and Wong saw the current economic tidal wave coming years ago as longstanding shops on the West Side began closing. The city’s oldest garage/service station, Alec’s Automotive Machine Shop on Fraser Street, is on the cusp of being redeveloped as well.
More recently, gas stations became the collective canary in the coalmine.
City statistics show 106 business licences were issued to gas stations in 2009, a number that sits at 70 today. The land at 1698 West Georgia, once home to a Chevron, was assessed at $98 million as of July 2018.
More than 360 business licences were issued to auto repair shops 10 years ago compared to about 260 today. Those numbers, however, are misleading in the context of independent garages given that dealerships, large corporations, tire shops and all manner of vehicle services are lumped into those totals.
“All the suburbs will get the business, where there is cheaper land,” Wong said. “All the warehouses from Vancouver have disappeared and they’re in Langley, Surrey or other places.”
Don't count Calgary out, as commercial real estate investments top a six-year high and spell optimism in the Prairie city.
While many analysts and pundits decry the economic woes of Alberta’s biggest city, Calgary has tapped into a new economic pipeline that has delivered the highest commercial real estate sales in six years.
Total commercial real estate deals in 2018 topped $3.7 billion in Calgary, a level below only the record-setting performance of 2012, two years before oil prices crashed.
The industrial sector had its best year in the past decade, with 132 transactions worth $758 million, reports Altus Group, noting 2018 investment values surged 14 per cent from a year earlier.
Big players accounted for much of the industrial action, an indication of the confidence of corporate Canada in Calgary’s recovery. Investment giant Manulife paid $36.3 million in the fourth quarter of last year for an industrial site in northeast Calgary, where it paid $162 per square foot. Skyline Real Estate Investment Trust paid $37.6 million for an industrial property in the southeast. In the same three-month period, Enright Capital Ltd. and Crestpoint Real Estate Investments snapped up a logistics facility and development land in southeast Calgary for $36.7 million.
Led by warehouse and transport demand, Calgary has 3.5 million square feet of industrial under construction. with 1.5 million square feet set to open this year, according to Cushman & Wakefield. In the fourth quarter 2018, more than 8.8 million square feet of industrial space was leased up at an average net rent of $9.07 per square foot, the commercial agency reported.
Calgary’s retail sector investments also defied skeptics, posting a 14 per cent increase in transactions during 2018. Big deals included LaSalle Canada Property fund buying the Market at Quarry Park for $52.7 million. Earlier in the year, Calgary-based Boardwalk Real Estate Investment Trust partnered with RioCan Real Estate Investment Trust to start a 162-unit multi-residential rental tower in the Brentwood Village shopping centre in Calgary. The mixed-use development will include a 12-storey high-rise with about 130,000 square feet of rental housing and 10,000 square feet of retail.
Multi-family rentals in Calgary appear a safe bet. Mainstreet Equity Corp., one of the largest landlords in Alberta, has been buying in Calgary all through the downturn and it has paid off.
“Mainstreet managed to not only survive but thrive in 2018, producing our best annual results since the recession began in 2014,” the company reported in January.
“This included a return to double-digit growth across all of our key real estate metrics. NOI [net operating income] grew 12 per cent compared with 2017 while FFO [funds from operation] per share grew 18 per cent and rental revenues increased 11 per cent,” the company reported.
In the fourth quarter of 2018 alone, Mainstreet spent $35.7 million buying seven apartment buildings, including five in Calgary. The cost of the Calgary apartment blocks, all mid-market properties, ranged from $126,700 to $162,500 “per door.”
With mass timber now set for the mainstream, the one challenge could be producing enough for both encapsulated and exposed uses.
Wood towers have come a long way since the log skyscrapers of Whitehorse, landmarks on the skyline of the northern city that have since been dwarfed by trials of six-storey wood-frame buildings and, more recently, the 18-storey Brock Commons tower at the University of British Columbia that was completed in 2017.
Recent changes to the B.C. Building Code are set to make 12-storey wood towers a mainstream option, paralleling the approval later this month of 18-storey wood towers in Washington state and changes to Canada’s national building code that take effect next year.
Riding the wave forward is Penticton’s Structurlam Products Ltd., part of the Adera Group of Cos. Adera originally invested in Structurlam in 2008, and today the timber manufacturer is booked solid with orders from Adera and other builders.
“We asked, ‘How can we build wood better?’ and we started turning to engineered structural woods as a solution,” said Eric Andreasen, vice-president of marketing and sales for Adera Development Corp.
Andreasen said Adera builds exclusively with wood and is calling its mass timbers “SmartWood,” a nod to both the sustainability and construction benefits of the material. The laminated timbers are set in floors and elevator shafts, creating exceptionally quiet residential spaces (which bear the Adera trademark “QuietHome”).
“We’re as quiet as, if not quieter, than concrete homes built to code,” Andreasen said.
Complaints about noise transmission have fallen to zero because the floors are solid but lack the density that sends percussive sounds hammering through buildings. QuietHome protocols also address airborne noise.
Russell Acton, a partner in Acton Ostry Architects, which designed Brock Commons, said allowing 12-storey wood buildings in B.C. is exciting because they make standard what was previously allowed only under site-specific regulations.
“I’ve had a fair degree of interest over the last two or three years, since Brock Commons was really moving along, but nothing’s really come to fruition,” he said. “I think the stumbling block is the approvals.”
The process was time-consuming, with just a couple of approvals possible each year, a deterrent for time-strapped developers.
Acton has encouraged developers to research approval timelines before embarking on a project.
With mass timber set for the mainstream, the one challenge could be producing enough for both encapsulated and exposed uses (exposed uses generally require additional mass for fire mitigation).
“My understanding is they’ve been pretty darn busy trying to stay on top of the current demand,” Acton said. “And that’s even without the code changing.”
The activity has Structurlam planning to boost capacity, which is well beyond where the company was when Adera became an investor.
“They’re booking years out in advance right now,” Andreasen said. “[It’s] a big increase from where it was when we first got involved with them.”
Heritage Vancouver Society wants the church’s history documented before building knocked down.
The history of Kitsilano Lutheran Church, which is going to be knocked down to make way for a townhouse development, won’t be evaluated or documented before it’s demolished despite a plea from Heritage Vancouver Society.
At an April 2 public hearing, city council approved redevelopment plans for the property located at 2715 West 12th Ave.
The development site includes two lots on the northwest corner of West 12th Avenue and Stephens Street. The 1948 Kitsilano Lutheran Church is currently on the property although it’s now occupied by another religious group (City Life Church), which signed a short-term lease knowing redevelopment was being pursued.
The plan is to build two, three-and-a-half story residential stacked townhouse buildings with 14 secured market rentals, including three one-bedroom, five two-bedroom and six three-bedroom units. The project was considered under the Affordable Housing Choices Interim Rezoning Policy. The applicant requested and qualifies for a development cost levy waiver, which requires that rents meet certain limits. In this case, proposed rents for the project are $2,056 for one-bedrooms, $2,703 for two-bedrooms and $3,559 for three-bedrooms.
Those rents are deemed affordable for households earning between $80,000 to $89,999 for the one-bedrooms, $100,000 to $124,999 for the two-bedrooms and $125,000 to $149,999 for the three-bedrooms.
The city’s 10-year Housing Vancouver strategy calls for more townhouses to be built but progress has been slow — the number approved or built since 2017 is 275. The city’s goal is to have 5,000 built by 2027.
Most feedback submitted to the city about the West 12th Avenue townhouse development was positive, with 25 pieces of correspondence in favour (several highlighting the need for housing options in Kitsilano), six pieces in opposition (much of which centred on traffic and design of the townhouses) and one item — a letter dated April 2 — from Heritage Vancouver Society categorized as “other.”
Heritage Vancouver’s letter to the City of Vancouver asked for an independent heritage assessment and evaluation on the existing building and site, and that it be one of the conditions for approval of the project.
The city staff report only noted that “the site is occupied by a church building constructed in 1948, which is currently vacant and not a candidate for addition to the Vancouver Heritage Register.” Heritage Vancouver called that “troubling and concerning.”
“Unfortunately, the site was not included within the existing Heritage Register resources since many properties’ provenance and importance only come to light when threatened with redevelopment, such as this example,” its letter states. “The Heritage Register also exists as a living document, meant to be added to and updated when properties are identified, then allowing potentially for various bonusing to aid in potential unique redevelopment opportunities.”
During the public hearing, NPA Coun. Lisa Dominato asked staff about Heritage Vancouver’s concerns. Council was told staff hadn’t had any discussions with Heritage Vancouver, that they look to the heritage register and upgrade list to identify resources that may have heritage potential, and that “…we do value heritage but also need to prioritize limited resources.”
The City of Vancouver later told the Courier that the potential heritage value of the church was not identified as a concern from the public in the feedback it received during the process.
Heritage Vancouver, meanwhile, says the building is a prime example of immediate post-war church architecture in the city.
Joseph Francis Watson and Harold Nelson Semmens designed it in 1947 for Kitsilano Lutheran Church. Watson served as president of the Architectural Institute of B.C. in 1945-46 and was a founder of UBC’s School of Architecture, while Semmens is credited with modernist works such as the Vancouver Public Library on Burrard Street and Hycroft Apartments at Granville and West 15th Avenue.
“Since Vancouver continues to eradicate its architectural legacies and built form examples of cultural properties without evaluating what is being demolished — at a minimum, a Heritage Assessment and Evaluation then potentially a Statement of Significance (SOS) will serve as a baseline for proper determination, and also document this site for the future,” Heritage Vancouver wrote.