This week’s top stories focus on either the cost it takes to build new commercial real estate, or which ventures best serve the retiree community when it comes to property investment. Altus’ releases its latest Construction Cost Guide, while two reports in Western Investor’s latest issue demonstrate property offerings in the Southern Okanagan that provide strong investments geared toward retirees.
Here is Western Investor’s pick of the most buzz-worthy commercial real estate stories published this week.
Altus Group provides the hard construction costs for multi-family, industrial and commercial real estate projects in Western Canada cities.
Canada’s construction sector generated $87 billion in residential projects in 2018 and $53 billion in commercial and industrial real estate in nearly 1,500 projects. Infrastructure to support new development and population growth tallied another $70 billion in 280 major projects.
This year started with significant headwinds from government policy aimed at reducing residential demand, but it is estimated that 210,000 new homes will be started in 2019 and 300 million square feet of new commercial and industrial space will begin construction.
That construction comes with a cost, as detailed in the Altus Group’s 2019 Construction Cost Guide. The annual guide is trusted as a budgeting tool by public bodies, developers, lenders, contractors, consultants and various industry professionals.
The guide is founded upon Altus Group’s proprietary database of project costs, which includes project data from over 1,300 Canadian cost and project management engagements in 2018 alone. Drawing upon this comprehensive catalogue, Altus has analyzed the information and provided a succinct summary of the findings for each major market across the country.
Note: While using the Altus cost guide helps develop a preliminary project financial plan, we strongly recommend you seek professional expert advice to provide a more precise, project-specific estimate and pro forma. The construction costs presented here represent hard costs only, and do not include soft costs, such as legal and insurance costs, government fees, financing costs, environmental costs, property taxes, marketing and sales costs and commissions, or the developer profit.
However, since land costs, especially in Metro Vancouver, have an effect on housing prices, Altus has included a breakdown of the per-buildable-square-foot costs for high-density residential based on land values.
In the city of Vancouver, where an acre zoned for high-density residential can top $40 million, the average price of a new high-rise condo apartment is now $1,345 per square foot, according to a survey by Century-21, up 39 per cent from a year ago.
Rising costs, retail slump cloud sector posting Canada’s highest lease rates and sale prices.
Metro Vancouver industrial lease rates are now the highest in Canada, and vacancy rates have fallen in the face of unprecedented demand, but clouds are forming over the region’s strongest real estate sector.
As of the end of December, industrial lease rates averaged $11.86 per square foot, the highest in the country, according to commercial agency CBRE Canada.
Lee & Associates reports that annual lease rates have spiked to $17.70 per square foot in the city of Vancouver, where the industrial vacancy rate has dropped to 1.4 per cent, by far the lowest of any Canadian city.
Metro Vancouver sales of industrial properties hit $385 million in 2018’s last three months, considered a fourth-quarter record. The price per square foot is now an unprecedented $370, up $80 per square foot from a year earlier.
There is nearly five million square feet of new industrial space under construction across the Metro region, but about 60 per cent of it is pre-leased or sold, according to CBRE.
Much of the industrial action, CBRE noted, is in warehouse and distribution space tied to the retail sector, including the 1.1-million-square-foot Xchange business park in Abbotsford by Hungerford Group and QuadReal Property, developed on speculation and proposed for completion late next year.
But a “major deceleration of retail sales growth” from 9 per cent in 2017 to 2 per cent last year is among the reasons the BC Real Estate Association cites for an expected “flattening” of commercial and industrial markets in 2019.
Accelerating input costs could be the biggest threat to the speculative industrial development, however.
Cushman & Wakefield estimates industrial construction costs have risen 40 per cent over the past two years.
U.K.-based international project management and consulting firm Turner & Townsend warns that work on major B.C. projects, like LNG Canada at Kitimat, the largest construction project in Canada, and BC Hydro’s Site C dam, will worsen an existing labour shortage, “adding to the cost pressure.”
Mobile home parks remain the most affordable residential investment in British Columbia.
Perry Peace, a multi-family apartment landlord in Regina, placed a simple ad in Western Investor last month: “Private investor wanting to purchase mobile home park in B.C. or Alberta,” the ad read.
Percy is representative of what has always been a major profile in the manufactured home park buyer base.
“I want to retire and I don’t want to be too far north,” Peace said, noting that it was minus 35 degrees in Regina as he spoke in early February.
The fact he is advertising to find listings reveals another trend: a shortage of manufactured home parks in B.C. after many have been sold as redevelopment plays.
Peace has about $2 million to invest in a park, and a scout through the Western Investor found a number of listings that would likely fit the bill.
These include a 12-site park near Salmon Arm in the Okanagan, fully occupied and priced at $549,000 and returning 6.5 per cent annually, representing an annual net income of about $36,000; and a 12-unit mobile home park with six rental cottages in the South Okanagan, priced at $1.62 million, both listed by veteran park dealer Vadim Kobasew of Re/Max Commercial in Penticton.
Kobasew noted the Salmon Arm property has recently sold “for very close to the asking price.”
Eugen Klein of the Klein Group has a 15-pad park in Rock Creek in the South Okanagan listed at $549,000, with a 9.1 per cent capitalization rate. “An ideal retirement home,” Klein suggested.
Unique development combines affordable homes with opportunity for lock-and-leave rental stream.
About 3,300 baby boomers now at or nearing retirement are cashing out of their homes in Metro Vancouver each year and moving to more affordable areas, according to an analysis from the sociology department at the University of British Columbia.
It is an outgoing tide expected to swell as Metro Vancouver’s population over age 65 soared by 24 per cent between 2011 and the 2016 census to hit 387,000 out of an overall population of 2.5 million.
While some seniors are leaving cash-heavy from home equity, the majority are seeking assurance of a long-term income stream to secure their retirement, said Scotty Grubb, an active senior himself and the developer behind Oliver Heights in the wine-country town of Oliver in the South Okanagan.
Grubb said the concept behind Oliver Heights is to deliver high-quality, compact retirement homes in a resort environment but to also provide owners with the option of rental income from built-in rental apartments.
All this for less than $400,000, or about 25 per cent of the cost of a small, older bungalow in East Vancouver or North Burnaby.
“An owner can take off to Mexico, Arizona or other destinations for months and still have money coming in,” Grubb explained.
The South Okanagan is already a prime destination for seniors and people of all ages, and Oliver is representative of the attraction. Known as the wine capital of Canada, the town of 15,000 has 40 wineries in the area, plus three golf courses. The refurbished Mount Baldy ski resort is a short drive away, and the town boasts a regional hospital. A Formula One racetrack is a quick drive from town, as are two lakes. Both the U.S. border and the Penticton airport are within a half-hour drive.
A likely lure for rain coast residents is that Oliver boasts the driest climate in Canada and is only a four-hour drive from Metro Vancouver.
Grubb, CEO of Oliver Heights Development Corp., said Oliver Heights is being built in phases, with the first phase already sold out. He officially launched Phase 2 during the World Outlook Conference in Vancouver in February. Oliver Heights, a benched community, will eventually have about 300 homes.
Grubb sat down with Western Investor to explain how the unique resort-and-rental income works at Oliver Heights, where 23 detached homes are planned overlooking vineyards and the southern Okanagan Valley in Phase 2.
The average price of the lots is $129,000 (with some Phase 1 lots as low as $120,000.) The 40-foot- wide-by-100-foot deep lots are sold as bare land strata. Strata fees are expected to be around $95 per month, and this includes snow removal and landscaping.
The lots are being sold with a 10 per cent down payment, with the balance paid within four months. Financing packages are available from local credit unions, Grubb noted.
The engineered houses average $256,000 and, with a $129,000 lot, the all-in price is approximately $386,000.
While many former homeowners from the Lower Mainland may be paying cash, financing is arranged with 20 per cent down payments. Estimated mortgage payments are in the range of $1,440 per month.