The week’s top stories focus on the Vancouver and Prairie residential investment markets, as well as a major retail development in downtown Vancouver. In Vancouver, the housing market investment may be negatively impacting by over-regulation, while modest recovery in the Prairies is leading to positive effects on the region’s investment market.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
‘Combined effect of tighter mortgage guidelines and higher interest rates has been larger than previously estimated,’ says Bank of Canada.
Economic growth in Canada from residential real estate investments will go negative in 2019, according to the Bank of Canada (BOC), which has conceded that stiff new mortgage regulations, local housing restrictions and rising interest rates have had a larger and more negative impact than expected.
Consumer spending and housing investment “have been weaker than expected” as housing markets adjust to “to municipal and provincial measures, changes to mortgage guidelines and higher interest rates,” according to a BOC statement.
“Staff analysis suggest that the combined effect of tighter mortgage guidelines and higher interest rates has been larger than previously estimated,” the BOC noted in its January statement.
The BOC left the overnight benchmark policy rate at 1.75 per cent in its January 9 setting.
In 2018 Metro Vancouver housing sales fell 32 per cent from a year earlier, to the lowest level since 2000 and 25 per cent below the 10-year average. Prices for Vancouver-area detached homes in some regions dropped at least 10 per cent compared with a year earlier, with even more dramatic declines in higher-end neighbourhoods.
The benchmark price for a West Vancouver detached house as of December was down 13.5 per cent from a year earlier and dropped 11.8 per cent in Vancouver’s west side, the Real Estate Board of Greater Vancouver reported.
“The B.C. government in its 2018 budget increased the foreign-buyer tax to 20 per cent and added a speculation and vacant home tax, which – in addition to rising interest rates – dampened sales, especially for more expensive single-family homes,” noted Sherry Cooper, chief economist with Dominion Lending Centres.
The City of Vancouver is also taxing empty homes for the first time in 2019.
The varied disincentives to the demand side are also affecting the supply of new housing in Metro Vancouver, with housing starts falling 11 per cent in 2018 from a year earlier, according to Canada Mortgage and Housing Corp. (CMHC).
Despite market slowdown and even in detached sector, ownership cost vs income is getting worse, finds nationwide study.
Even though Metro Vancouver’s real estate market has seen a significant slowdown recently, the affordability of both houses and condos has eroded, according to a study by National Bank of Canada.
The nationwide study found that a mortgage payment for a median-priced single-family home in the Vancouver Census Metropolitan Area – based on a set of parameters – was now 101.5 per cent of the region’s median household income. That’s up 2.7 percentage points over the previous quarter, a jump of 6.4 percentage points year over year, and the highest it has ever been.
National Bank said this erosion of affordability was “on the back of rising interest rates and falling income growth,” as median single-family home prices were down 0.7 per cent quarter over quarter and up just 1.8 per cent year over year.
In the condo sector, affordability is also at its worst-ever level, according to National Bank. It found monthly mortgage costs on a median-priced condo in the Vancouver CMA now take up 49.2 per cent of the median household income, up 1.3 percentage points from the previous quarter and 6.3 percentage points year over year. That is the 14th consecutive quarterly deterioration in condo affordability in the region, said National Bank.
The bank also noted the widening affordability gap between homeownership and renting. Although Metro Vancouver homeownership has long been more expensive than renting in terms of monthly cost, that expense has been offset by the enforced saving of paying down mortgage principal. However, the extremely high costs of homeownership in today’s market and the much wider gap between monthly expenditure is dramatically lessening the advantage of homeownership, according to National Bank’s figures.
Commercial real estate investments are flowing into major cities – some taking advantage of lower property prices in wake of oil price “crisis.”
Slate Asset Management has bought a block-long string of buildings on Stephen Avenue in downtown Calgary, and has wrapped up the purchase of approximately 2.5 million square feet of commercial space over the past two years. As 2018 ended, Slate had closed on Stephen Avenue Place, Joffre Place, Life Plaza, the Venator Building and the Kraft building. In all, the Toronto-based company now has a lock on more than 5 per cent of Calgary’s downtown office inventory.
And they are looking for more, joining investors who are defying skeptics by placing big bets on Canada’s premier oil city.
Earlier last year Spear Street Capital paid $98 million for Calgary’s IBM Corporate Park, and a third-acre parcel on 14 Street NE was sold for $102 million in a retail design-build agreement. In the third quarter of last year, Calgary office property sales had soared to $254 million, a 179 per cent increase from the same period a year earlier, according to Altus Group data.
Through the first nine months of last year – and before Slate’s latest acquisitions in November and December – commercial real estate transactions in Calgary had increased 26 per cent from the same period in 2017.
This all happened as oil pipelines remained in limbo and the Calgary office sector was reporting Canada-high vacancy rates at north of 26 per cent. The province of Alberta is scrambling to launch oil trains and trucks to carry oil to U.S. and Vancouver ports as it deals with what Premier Rachel Notley has termed a “crisis” in the lack of pipeline capacity.
“The rise in overall commercial investment is a positive note, particularly in the land and industrial markets [of Calgary],” noted Ben Tatterton, manager, data solutions at Altus Group.
The multi-family sector posted 13 apartment building transactions worth a total $34 million in the third quarter, taking year-to-date investment volumes to $112.8 million. The largest transaction was a 51-unit apartment acquired by Mainstreet Equity Corp.
A total of 19 transactions were recorded in the residential land market in the third quarter, totalling $160 million, bringing year-to-date 2018 investment to $495.8 million, a 68 per cent increase over the same three quarters in 2017.
There were also 47 sales of non-residential land parcels, totalling $129 million in the third quarter. This pushed year-to-date 2018 investment volumes to $432 million, an increase of 39 per cent from the same period a year earlier. Commercial land sales accounted for 26 per cent, with industrial contributing 21 per cent of the total and most of the rest being agricultural land, according to Altus.
Loblaws City Market to anchor massive downtown Vancouver post office redevelopment – Vancouver is Awesome
City Market will be part of the development’s 185,000 square feet of retail space, which will also include a food hall, gym, pharmacy, and dining options.
The former central post office in Downtown Vancouver is destined for a massive revamp, and the historic building will be redeveloped into retail and office space. Now the “Post” developer, QuadReal, has announced that the retail portion will be anchored by a large location of Loblaw Companies Ltd.’s Loblaws City Market.
CityMarket is the slightly upscale and urban brand of Loblaws, who also operate No Frills, Real Canadian Superstore, and T&T Supermarkets in Metro Vancouver. They have three current City Market locations in the area, in Park Royal (West Vancouver), Lonsdale (North Vancouver), and Arbutus (Vancouver). Their location in Richmond’s Ironwood area, at the former Fantasy Garden mixed-used redevelopment, closed last year after just a couple of years in business.
For downtown Vancouver at The Post, City Market will be part of the development’s 185,000 square feet of retail space, which will also include a food hall, gym, pharmacy, and dining options.
The City Market “will provide a best-in-class shopping experience at The Post, with a large-scale grab-and-go section, café, cooking classes, and fresh meat, produce and bakery items,” according to Quad Real.
The Post is a massive re-purposing of Vancouver’s onetime central Canada Post building, which was completed in 1958. The West Georgia Street historic structure’s redevelopment is large-scale and noteworthy for several reasons.
“The Post is one of the most ambitious heritage redevelopments in Canada’s history,” explains QuadReal. “It celebrates the location’s Canada Post legacy through sustainable and adaptive reuse while at the same time prioritizing the needs of Vancouver’s emerging knowledge economy. Located at 349 West Georgia Street in a high-traffic area of Vancouver, The Post will include 1.13 million square feet of state-of-the-art office space in two new towers, surrounded by retail and public spaces.”
Amazon is set to take 35 per cent of that office space.
The phased construction has completion for The Post in 2022 through 2023.