The week’s top stories focus on retail and residential real estate and new developments. In the retail sector, smaller, neighbourhood retailers are feeling the pressure from rising land and lease prices. Meanwhile, the redevelopment of Richmond Centre defies usual municipality demands and is expected to include low income housing and up to 2,000 new homes altogether. Last week we reported that home prices have taken a dive in pricey neighbourhoods since new tax measure came into effect – however, stats from this week show construction starts are soaring regardless.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
Redevelopment pressures up ante for local merchants amid rapidly eroding bottom lines, BIV’s Peter Mitham reports.
It's not just residents facing the pinch from high property values. Retailers are also being squeezed by the effect high-cost neighbourhoods are having on their operating margins, while a shifting consumer mix changes what’s rung up at the till.
Adieu, the traditional mix of grocer, pharmacy and gift shop with a postal outlet at the back. Welcome, another real estate sales centre, beauty shop and coffee bar.
“What’s astounding about Vancouver is the depth of the coffee shop market,” said Stephen Knight, president and managing partner for B.C. of Sitings Realty Ltd. “The whole underlying dynamic of retail is changing.”
Yet for him, it makes sense as urban population densities rise.
“There are now 150,000 people living downtown, and they’re living in very dense quarters and they need services,” he said.
The area around the intersection of downtown Vancouver’s Seymour and Dunsmuir streets illustrates the dynamic at play.
“Gotham [Steakhouse] feeds off the downtown core, and 7-Eleven, the Asian places and A&W feed off the BCIT [British Columbia Institute of Technology] campus upstairs,” he said. “There is far more demand for urban street-front space than in the suburbs.”
A lack of density can mean tough times even for retailers close to the core, in areas where property values have increased but densification hasn’t. Without the traffic needed to boost retail revenue enough to cover operating costs, from stock to staff to rents that include property taxes, merchants scramble.
“The traditional retail environment is struggling, there’s no question. Everywhere,” said Jason Turcotte, vice-president of development with Cressey Development Corp. Cressey built the Olive complex in Cambie Village in 2006. The project replaced a well-known produce store, but also heralded the redevelopment pressure that followed the arrival of the Canada Line.
“You need the towers for the people, and you need the services for them when they get there,” he said, discussing the effect of transit on neighbourhood development.
“The retail future is the stuff that’s right downstairs, within walking distance of residential.”
Without population density, neighbourhood retail in high-rent neighbourhoods would seem to face a difficult future.
Or does it?
Placemaking is a hot topic in planning circles, and when it comes to retail, that means having something that attracts people.
Colliers International says offline experiences are a fundamental ingredient in supporting local shopping precincts, citing the success of the Khatsahlano arts and music festival in drawing traffic to West 4th Avenue each summer and anchoring people to place.
This is especially important as people shift to online purchasing of staples like groceries, taking away some of the recurrent business that used to sustain neighbourhood merchants, said SFU Community Trust CEO Gordon Harris, who was a retail consultant prior to taking on his current role.
Throw in redevelopment of older, more affordable space into more expensive space, and chances are fewer shops will be the locally owned businesses that made the areas interesting.
“You have to charge more rents,” Harris said. “And in the charging of more rent, you self-select who your tenants are going to be. They’re large-volume retailers who either can attract the volume or are going to build a bigger store that draws on a bigger market.”
The pre-zoned site isn't beholden to the usual development demands made by municipalities, Van Courier’s Graeme Wood reports.
“This is not normal. It’s very unusual because it was pre-zoned in the 1980s,” explained Coun. Linda McPhail, chair of city council’s planning committee.
The Richmond Centre South Redevelopment Plan will add about 2,000 new dwellings in roughly a dozen new towers between No. 3 Road and Minoru Boulevard. The old, brick Sears building and mall parkade will be demolished, as will the southern-most parking lots. Park Road will be extended through the development, which will neighbour Richmond City Hall alongside a new east-west road.
“The City's ability to secure community amenities, such as affordable housing, is severely compromised because Council does not have the discretionary power of a rezoning application,” notes a staff report to city council.
However, despite the pre-zoning — which is somewhat of a question mark to McPhail, as its roots are not explained in a staff report to council — the site will be subject to amendments to the City Centre Area Plan and, as such, city planners are nevertheless able to negotiate some community amenity contributions from developer GBL Architects, which has several projects on the go in Richmond.
For example, according to the report, GBL Architects proposes “approximately 150 dwellings for low-income, workforce households (e.g., retail sales employees, teachers nurses, etc.) in two purpose-built rental buildings suitable for operation by non-profit housing providers.”
This, however, represents only five per cent of dwelling space, not the 10 per cent now required (as of July 2017) under a rezoning application of similar magnitude. Considering nothing was required initially, McPhail called the contribution “significant.”
These rent-fixed-to-income dwellings will be made possible by the city lowering costly parking space requirements, from 1.5 spaces per dwelling to one space per dwelling.
Typically, for social aspects, city planners promote mixing such housing with market dwellings, but they appear to be separated here as part of the negotiations.
The development proposes 50 per cent “family-friendly” housing, meaning half the dwellings will be two or more bedrooms. Because a pre-zoned development does not require consultation with the Richmond School District, the application will only be forwarded to the Board of Education as a courtesy.
Housing starts in the first quarter of 2018 have more than doubled year-over-year, while home sales took a dive.
As housing sales dropped to the lowest level in five years, Metro Vancouver new home starts have soared in the first quarter of the year, with starts in Vancouver alone more than twice as high as during the same period in 2017.
There were 6,542 home sales on the Multiple Listing Service (MLS) in Metro Vancouver during the first quarter of 2018, which is a 13.1 per cent decrease from the same period last year.
This represents the region’s lowest first-quarter sales total since 2013, reports the Real Estate Board of Greater Vancouver (REBGV).
But total housing starts across the region increased to 6,864 units in the first three months of 2018, up 30 per cent from a year earlier.
In Vancouver, first quarter starts soared 109 per cent to 1,956 homes, including 1,592 apartments or townhouses. Vancouver detached house starts jumped 93% to 364 homes, reports Canada Mortgage and Housing Corp.
Huge increases were also seen in North Vancouver, where 1,422 homes broke ground so far this year, compared with 107 in the same period in 2017.
Starts were also higher in the Tri-Cities and Richmond, but were down in Burnaby and Surrey following near record starts in the first quarter of last year. West Vancouver had 120 multi-family starts this year compared with none in the first quarter of 2017.
The real estate board noted that sales of existing homes have been hit by a number of factors in 2018.
“We saw less demand from buyers and fewer homes listed for sale in our region in the first quarter of the year,” said Phil Moore, REBGV president. “High prices, new tax announcements, rising interest rates, and stricter mortgage requirements are among the factors affecting home buyer and seller activity today.
The economic development fund launched in mid-2017 may assist downtown franchises in finding or expanding space.
The City of Calgary’s $10 million economic development investment fund, launched in mid-2017, includes relief for retailers in the hard-hit downtown area.
The assistance could help some downtown franchises find or expand space, according to franchise consultant Ken Wither.
The retail vacancy rate in the central business district is nearly 10 per cent, while it is only 2.7 per cent in suburban markets. Reasons given for core retail going dark include a slump in office workers – the office vacancy rate is the highest in Canada – an increase in minimum wages and higher taxes, according to the Calgary Downtown Association, which represents core businesses.
Calgary council has approved amendments to the city’s land use bylaw for a three-year period in the downtown “city centre enterprise” area. The amendments waive the requirement for a development permit in the following cases: changing from one use to another (e.g., from office to retail), making external alterations to an existing building and making a small addition of less than 1,000 square metres in size.
“These changes will make it easier for franchise locations to optimize a smaller space and will help landlords attract more tenants,” said Wither, owner of Acuity Business Group, with offices in Calgary and Kelowna.
Wither added that retail franchises are discovering they may not need as much space, due to online shopping and delivery options.
“Where 2,000 square feet may have been sufficient a few years ago, more franchise brands are choosing smaller locations and optimizing the space to help reduce occupancy costs while still delivering high-quality products and services,” Wither noted.