This week’s edition of the Weekly Buzz features two stories on the possible dearth of Vancouver office space, due in part to fervent interest from technology companies, both local and international. We also take a look at a recent provincial government announcement to ban limited dual agency in real estate deals, likely to prevent collusion within brokerages. Canadian farmland also continues to be a sector of interest for investors, as values continue to appreciate but remain a relative bargain when stacked against global farm prices.
Here is Western Investor’s pick of the top four most buzz-worthy commercial real estate articles published this week.
Guest columnist J. Neil Hamilton suggests that Vancouver office space is facing a shortage due to tech industry, with available inventory now standing at great contrast to the city’s office vacancy rate from just a few years ago.
Not that long ago, many people were decrying the flight of head offices out of Vancouver to Canada’s new Riyadh, Calgary, and the thousands of square feet of office space that was freeing up. But our loonie went from par to just over US$0.70 (since to claw its way back up to US$0.82 but with seeming little negative effect) and Canada started to look good again for US multinationals and tech companies.
Then President Trump (that phrase still sounds like an oxymoron – or should that read “political moron”?) decided to bar people of certain ethnic backgrounds, religions or parts of the world (many of whom are amazingly talented in the tech sector) from entering or re-entering the United States, making Canada that much more attractive.
Add to those things the last three months of Hawaii-like weather we’ve had here (I’ll conveniently forget the preceding winter…) and bang! Everybody wants to live and work here.
Did you know that at present, of our major cities in Canada, Vancouver is the best for job seekers? Restauranteurs, retailers and tech companies alike can’t find people to work in their establishments. Granted, some of the smaller tech people are having trouble attracting talent here due to the high cost of accommodation in this city, but the bigger companies are still locating in YVR. After all, San Francisco is about as bad (or worse) for cost of living, and the movie people are still on a roll here as well.
And even though Amazon has already taken a lot of space here, they’re still sniffing around for a second North American headquarters. However, the space they would require and the number of people they would have to hire (not to mention the housing expenses here, and our proximity to Seattle) probably takes us out of the running for that behemoth. Tim Ellis of Geek Wire ranks Vancouver as #10 out of the Top 10 cities that Amazon could locate in, mostly for the above reasons.
But locally grown tech “unicorns” such as HootSuite, Avigilon and Slack are all making their voracity for office space known. A recent report by Cushman & Wakefield foretells the second-lowest office-vacancy rate in the western hemisphere for Vancouver by 2019. Their prediction is for a YVR office-vacancy rate of just over 6 per cent by then, putting us just behind Toronto at around 4 per cent. And according to Colliers International, we’re pretty well there now, with a current rate of 6.3%, the lowest Metro Vancouver vacancy rate since the first quarter of 2009, when it was 5.7%.
So, let’s recap. We have no office space, and no condos for people to live in, either to rent or to buy, and the highest gas prices in the country (or close to it). Will people start moving away from our jewel-by-the-sea? We’ve all heard stories of the so-called “exodus” of young people moving to Kelowna, etc, due to the high cost of accommodation. But then again, equal numbers seem to be arriving. This writer experienced exactly that at a recent small networking gathering, meeting a newly arrived young female writer from San Francisco and a just-graduated architect from Argentina.
As tech firms continue to snap up prime office space, a recent sizable lease agreement is still being kept under wraps. BIV’s Peter Mitham has the story.
Speculation will soon end as to whether the company is Amazon, Microsoft or some other firm, but word on the street pegs the tenant as a tech firm. The point recently had Jones Lang LaSalle (JLL) speculating as to whether Vancouver has the capacity to accommodate the tech companies on which it has pinned its hopes.
SwissReal Group’s much-discussed Exchange project at 475 Howe Street has given over nearly a third of its 369,000 square feet to hotel use, despite JLL noting that it’s the last new tranche of downtown space till at least 2019.
Yet when ground broke on the Exchange in early 2014, Mayor Gregor Robertson boasted that it was a sign of the city’s foresight, noting that tech firms would “be very visible in this new building.”
The latest investment stats for Greater Vancouver highlight the dearth of available office property on the market.
Altus Group reported that $3.4 billion in properties worth $1 million or more changed hands in the second quarter of this year, equal to the volume in the year’s first quarter.
Ivanhoé Cambridge led the way with its $274.4 million sale of Metrotower 1 and 2. Yet the overall volume of office and retail deals dropped 32% between quarters, driven largely by a decline in retail properties.
The picture in Real Estate Board of Greater Vancouver statistics is even more dire. While its numbers point to a 32% decline in total transactions to 595 deals worth $2.9 billion, office and retail fell a whopping 57.7% to just $775 million.
CBRE Ltd. reportsthat foreign investment accounts for 45% of all commercial transactions over $10 million.
Area One Farms, a private equity firm in Toronto, is seeing significant interest from investors in farmland. Area one uses a partnership model to help investors and farmers acquire agricultural land. The firm says investors are looking to farmland as ideal portfolio diversifiers. So why farmland and not other commercial investment options? The Globe and Mail reports.
Because Canadian farmland represents good value, Mr. Johnston says. It is trading at a discount to global farmland based on a measure he likens to a price/earnings ratio on a company's stock: productivity cost, or U.S. dollars per tonne of wheat produced. Global farmland costs $2,780 per tonne, Canadian farmland $1,850.
At the same time, the risk-adjusted return is higher. Farmland has generated much higher returns than the stock market with less volatility, Mr. Johnston says.
But that's not a guarantee, he notes. Indeed, farmland has occasionally fallen in value. Over the past 60 years, Canadian farmland has had seven down years, he says. That compares with about 15 for the stock market.
In Ontario, finding attractively priced farmland can be challenging, which is why Area One Farms focuses on making the land it has more productive and even buying and reclaiming land that may not have been farmed for years, Ms. Faulkner says. For example, it has been finding good value in Ontario in the New Liskeard area northeast of Sudbury, and around Rainy River. "It's mostly in the Canadian Shield," Ms. Faulkner says. "Those clay belts end up being really good soil."
Like any alternative investment, buying farmland comes with hefty fees. Area One Farms charges an annual 1.5 per cent a year on invested capital (debt and equity at cost).
As well, Area One charges a performance fee of 20 per cent if and when the property is sold at a profit and investors have netted what is known as a "hurdle rate" of 8 per cent a year. "If you don't make that, then you get everything and I get nothing," Ms. Faulkner says.
Agcapita charges a management fee of 2 per cent, which comes out of rental income, plus a performance fee of 20 per cent when the property is sold. It has a 5-per-cent hurdle rate for institutional investors but none for retail.
If agriculture funds are still relatively small in Canada, it may be because of their lack of liquidity, the difficulty in explaining the concept and the dearth of representation by investment advisers at the major brokerage firms.
"Because we spend a lot of money managing and improving our farmland, we don't have a lot of money to pay brokers," Ms. Faulkner says. Agcapita, in contrast, does work through investment advisors.
The B.C. government is poised to ban the practice of using a single real estate agent to represent both sides of real estate transaction. Commercial realtors and residential realtors are governed by the same rules, which means the move could potential affect commercial sales.
The move, which is intended to protect consumers from any conflicts of interests created by agents representing both parties in a transaction, may not have the desired affect and will also prevent many consumers working with their preferred agent, according to a response by the British Columbia Real Estate Association (BCREA).
"Every day, REALTORS® help their clients understand real estate transactions, so they can make informed decisions," said BCREA president Jim Stewart. "Over my nearly 25-year career as a REALTOR®, many long-standing clients have developed trust with me, and now my clients have no choice but to start from the beginning and build new relationships. Trust is a crucial part of what is often the largest financial transcation in people's lives."
The BCREA pointed out that the ban significantly limits consumer choice, as buyers may have a relationship with the listing agent on a home they want to buy, and will have to use an alternative agent. The association said it was concerned that this scenario could even lead some buyers, who might not be able to work with the agent of their choice, to opt out of working with an agent altogether.
"Rather than working with licensees they don't know, we're concerned people may decide to complete real estate transactions without representation," said BCREA CEO Robert Laing. "That goes against the consumer protection mandate of the Superintendent of the Real Estate and Real Estate Council of BC."