The week’s top stories focus on the effect of rising property values released by B.C. Assessment last week, in both the multi-family and commercial sectors. With commercial values increasing as much as 55 per cent, property owners fear for the future of their businesses, while renters may bear the burden of increased rental property values. Meanwhile, commercial permit values are exceeding record, while a reworked task force in gearing up to deal with the turbocharged demand.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
Landlord group says that increased property taxes will force apartment building owners to raise rents or spend less on building maintenance, reports the Times Colonist.
David Hutniak, chief executive of the organization that represents rental property owners and managers, said another year of increased assessment values could mean higher property taxes for the owners of rental buildings — hurting both landlords and eventually renters.
“Ultimately, renters will be impacted because any landlord contemplating holding rents in 2019 or not passing on the entire [consumer price index] increase [2.5 per cent], they will now have no choice but to do so,” he said.
Last fall, the province cut by two per cent the annual rent increase that landlords can charge, limiting increases to the CPI, which for 2019 is 2.5 per cent.
But with possible property tax increases looming as a result of high assessments, Hutniak said the 2.5 per cent falls far short of what landlords would need to keep up with increased costs.
“There’s simply no way to recoup that. It’s a frustrating situation,” he said.
B.C. Assessment, which sent out more than two million property assessments last week, told Glacier Media that the median assessed value of multi-family buildings in Greater Vancouver and the Fraser Valley rose by 10 per cent year over year in the 2019 roll. The Okanagan and Vancouver Island both saw overall increases of 13 per cent in value.
Hutniak said LandlordBC anticipated another increase in values, so it surveyed 20 per cent of the purpose-built rental buildings in Victoria and found last year they saw an average increase of 13.6 per cent in property taxes.
“That’s huge,” he said, noting the challenge they face is B.C. Assessment bases the value on landlords being able to charge market rent. “But with rent control, that’s just not the case.”
The result, he said, will be landlords delaying investment — from minor repairs to major improvements — in their properties, or putting them off entirely.
And there could also be fewer new rental buildings developed as the returns over time may no longer keep up with costs.
“Meanwhile, there’s so much pressure to invest and enhance these buildings and provide safe and secure rental housing, yet there’s so much pressure on the only source of income [rent],” said Hutniak. “It’s not sustainable. Something needs to give.”
Jillian Shoichet worries it will be landlords not being able to provide safe and comfortable homes for their tenants. The single mother of two rents a suite in a comfortable and well-maintained character building in downtown Victoria.
She said her landlord has worked hard to maintain the building and has only raised rent “as much as is fair and legal.”
But with the building now assessed at $1.55 million, up from $987,000 last year, there is concern the property taxes will jump. “Our landlord is, frankly, an extraordinary landlord,” she said, noting that on top of properly maintaining the site he is “always available to come by and look at things if we have concerns.”
Sky-rocketing values will only bank and doctors’ offices to be left on the North Shore, councillor warns.
While property assessments for single-family homes have been falling across the North Shore, commercial assessments have been heading in the opposite direction —clocking in with dramatic increases for the second year in a row.
That has a number of owners worried about what it could mean for taxes – and the viability of local businesses – in the future.
Ross Forman of Re/Max, a longtime commercial real estate agent on the North Shore, said he’s been getting phone calls from property owners since “early warning” notices went out in December from BC Assessment.
One owner of a commercial building on Marine Drive saw the assessment for his building double this year, said Forman.
The value of another light industrial building in the lower Mountain Highway area jumped more than 65 per cent, he said – from $1.5 million to $2.5 million.
Forman said both property values and lease rates for commercial and industrial property have been skyrocketing over the past two years. Industrial units on Welch Street that he sold two years ago for $300 per square foot are now selling at more than $500 per square foot, he said, and lease rates have jumped from $12 a square foot to $18 a square foot.
That makes it increasingly difficult to operate a small local business, he said.
Wayne Sugden knows that only too well. Sugden owns several commercial and industrial properties in North Vancouver – and all have been hit with high assessment hikes this year.
That sounds good on paper, he admits. “Now my building’s worth twice as much as it was yesterday.”
But “my tenants are getting nailed to the wall.”
Most commercial tenants are also responsible for paying the taxes for their units under “triple net” leases.
Currently, Sugden counts a high-end baby store and a non-profit thrift shop among his tenants. But he worries what climbing assessments could spell for North Vancouver in the future.
“Lower Lonsdale will be doctors’ offices, dentists’ offices and Starbucks,” he said.
“You won’t have the cute little dress shop.”
As in residential assessments, higher commercial assessments don’t necessarily translate into higher taxes, but owners say they’re concerned about that possibility.
“You worry about the property taxes,” said Tyke Babalos, who owns commercial buildings both in Edgemont Village and along Marine Drive.
Babalos said several factors are contributing to the rising values. Some people looking to park their money in real estate have switched from residential to commercial properties, he said. In other cases, developers bought properties for far higher prices than they would have fetched under current uses.
Because there is relatively little commercial property compared to residential, a few sales can have a big impact on nearby assessments, said Forman.
“It only takes a few of them to set the market,” said Forman. “Everybody else is left paying a huge tax burden.”
Statistics Canada data for November show the province issued the highest value of commercial building permits on record, BIV reports.
The value of permits issued for commercial buildings in B.C. has never been higher.
New commercial permits topped $564 million in November, a 130 per cent increase over October, according to Statistics Canada. The agency reported that a $240-million permit for a new office tower in the Greater Vancouver region contributed most to the gain.
Total non-residential permits – which include commercial, institutional and industrial developments – reached nearly $742 million, a 75 per cent increase over the month before.
B.C. accounted for most of the national increase in non-residential building permit values, which rose 11.6 per cent in November to $3.3 billion.
Not all B.C. values rose.
Month to month, the value of permits for residential buildings fell 27 per cent to $893 million. The decline was driven primarily by a drop in permit values for single family dwellings, which fell 30 per cent.
Victoria, Vancouver among top national permit issuers
At the regional level, Victoria and Vancouver saw the third and fourth largest year-over-year gains for total permit values.
In Victoria, November values rose 72.6 per cent over 2017. In Vancouver, they were up 63.4 per cent.
Both regions were behind only Quebec, where values rose 177.3 per cent, and Brantford, where values increased by 158.2 per cent.
In total, Canadian municipalities issued $8.3 billion in building permits in November, up 2.6 per cent from October and 6.6 per cent over 2017.
An industrial lands strategy task force was appointed in December, setting the stage for members to begin work in earnest, BIV reports.
Task force revamped
A new Metro Vancouver industrial lands strategy task force was appointed in December, setting the stage for members to begin work in earnest under chairman George Harvie of Delta this month.
Struck in spring 2018 by former Metro Vancouver chair Greg Moore, the task force’s voting members are representatives of the region’s municipal councils. Civic elections in October required its dissolution and reappointment with representatives from the new councils. The reconstituted task force has nine voting members, up from the former seven.
Harvie and vice-chairman Brad West of Port Coquitlam may be newcomers, alongside members Linda Buchanan and Jordan Back of North Vancouver city and district (respectively), Sarah Kirby-Yung of Vancouver and Brenda Locke of Surrey. Continuity comes from mayors Malcolm Brodie of Richmond and Richard Stewart of Coquitlam, as well as Bryce Williams of Tsawwassen First Nation.
Metro Vancouver director of regional planning Heather McNell said the committee aims to have an influence beyond the region’s municipalities.
“The regional industrial lands strategy really is seeking actions on the part of all stakeholders with an interest in industrial land in the region,” she said.
To this end, non-voting members include representatives from the Agricultural Land Commission (ALC) and B.C. Ministry of Jobs, Trade and Technology; the Port of Vancouver, TransLink, the BC Chamber of Commerce and Urban Development Institute; and industrial developers, including Value Property Group and Beedie Industrial. (Chosen at the chair’s discretion, non-voting members do not include commercial real estate association NAIOP, though NAIOP director Chris MacCauley has addressed the task force.)
With less than 1.7 per cent of the region’s industrial land vacant, the task force also hopes to draft recommendations that reflect the broader geographic implications for the land crunch.
“We’re looking at the relationship to other industrial lands outside of our region,” McNell said. “As the challenges of supply happen in our region, there’s a lot more pressure out in the Fraser Valley.”
The pressure is such that both Abbotsford and Chilliwack have expressed concern at the loss of suitably sized and located industrial parcels over the past two years.
Often, companies escaping high land costs closer to the core arrive in search of land that accommodates less intensive uses, leaving little for companies that can provide good-paying jobs. Alternatively, lighter industrial uses encroach on farmland, a concern of both Abbotsford Mayor Henry Braun and the ALC.