The week’s top stories primarily cover residential and office markets in Metro Vancouver and Victoria. In Metro Vancouver, the debate on whether the region is moving from a sellers market to a buyers market continues, while residents express their hesitance towards developers of new residential projects. In Victoria, multi-family investment remains high despite a number of proposed rental property regulations floating through city council.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
Metro Vancouver's $1M+ real estate turning into a buyer’s market – even for condos: Sotheby’s – Western Investor
Forecast predicts further declines for “top-tier” real estate market, with even resilient condos weakening.
Following a lacklustre summer performance, Metro Vancouver’s $1 million-plus real estate market is set to see even greater declines this fall, according to a Sotheby’s International Realty Canada forecast released September 26.
The luxury real estate brokerage said that the patterns in “top-tier” real estate activity over the summer, across all three property types, suggested the market was weakening further.
The report said that all of the top-tier market saw low sales in July and August. Sales of single family homes over $1 million dropped 27 per cent from the previous summer to 213 units, and detached sales over $4 million fell 38 per cent to 24 homes.
Sotheby’s said that even the more robust condo market, which has continued to see increasing prices, will be affected. The report stated, “The top-tier condominium market, which had remained resilient in the first half of 2018 with nine per cent year-over-year gains to 708 units sold over $1 million, waned over the summer months. Condominiums over $1 million saw sales volume fall 21 per cent in July and August to 162 units sold.
Brad Henderson, president and CEO of Sotheby’s International Realty Canada, said, “High-end sales and prices are softening in Vancouver, not only in the single family home segment, but across the city’s heated condominium and attached home markets. In the upcoming fall market, it will be buyers and investors who will hold the upper hand.”
The brokerage added that the first two weeks of September have been extremely slow, in a month that usually picks up activity after a summer lull. “This downward trend persisted throughout the first two weeks of September. Preliminary numbers reveal that overall residential real estate sales over $1 million fell 66 per cent year-over-year, to 55 units sold from September 1 to 15.”
The report concluded, “With new listings inventory being added to the market and cooling demand, Vancouver’s top-tier market will entrench in favour of buyers to the end of the year.”
The gold industry has mixed feelings about the redevelopment of courses into housing in the Lower Mainland.
Golf courses seem to always be in play when it comes to Lower Mainland land-use debates.
Earlier this year, Surrey’s city council approved the development of 325 homes on part of Eagle Quest Golf’s Coyote Creek course. In March, Vancouver Mayor Gregor Robertson proposed turning one of the city’s municipally owned golf courses into a park. The suggestion comes after wildlife and biodiversity concerns were raised over a 2012 proposal to turn the course into housing.
“Golf courses and all kinds of other lands that are currently empty should be developed,” said Andrey Pavlov, professor of finance at Simon Fraser University’s Beedie School of Business. “The question is, is this the most effective way to increase supply?
“I wouldn’t think golf courses are the first place to go, but if that’s what somebody wants to do, it’s better than not doing anything.”
Golf industry leaders have mixed feelings about repurposing golf courses. If a course is struggling and there’s an opportunity to find financial relief by redeveloping it, that just makes good financial sense, said Kris Jonasson, executive director of British Columbia Golf.
Jonasson said he isn’t worried about the effect that converting some courses to residential development might have on the broader golf industry. He noted that rising investment in facilities by the golf community is a sign of the industry’s health.
However, Jonasson has concerns about the potential loss of municipal courses. While B.C. has plenty of high-end luxury and championship courses, entry-level public courses are scarcer. Redeveloping public courses like Langara Golf Course would tilt the balance even further toward limited-access private courses. Jonasson said that would threaten the sport’s long-term viability.
“You need to have the entry-level facilities in order to generate play at all of the facilities,” said Jonasson. “We get people in at an entry level, they develop a love for the game and then they’ll find the appropriate venue that they want to consume the product at.”
The industry is concerned that without entry-level courses, attracting new entrants to the sport in B.C. would be much harder.
Many in the industry, however, are quick to point out that golf courses and housing aren’t mutually exclusive.
The city-approved housing development at Coyote Creek, for instance, sits on only the portion of the golf course that is outside the Agricultural Land Reserve, leaving the remainder of the course intact.
Jonasson said the choice to redevelop B.C. golf courses is also not a zero-sum game; the total benefit can be greater than the sum of the parts because redevelopment can help improve golf courses.
He noted that Coyote Creek plans to use the proceeds from its redevelopment to improve its golf course.
The Kamloops-based Tobiano Golf Course has been cited as another prime example of how housing and golf courses can provide symbiotic benefits.
The course was originally designed to be the cornerstone of a future community development. Tobiano provides both a customer base for the course and increased value for homeowners.
Ultimately, industry participants agree that the decision to redevelop a golf course should be left to supply and demand.
Rental sales and starts remain voracious despite proposed new rules that could dictate size and rent increase.
Victoria’s multi-family market is poised to entice landlords for the foreseeable future, following a summer of record home starts in the region and a vacancy rate of less than 1 per cent.
Canada Mortgage and Housing Corp. forecasts the region’s 0.7 per cent vacancy rate to remain tight throughout 2018.
More than 2,000 rental units are currently under construction and are expected to hit the market this year and into 2019, with more than 5,000 in the pipeline or development process. New supply is expected to edge up vacancy rates only moderately, however.
Nearby Langford is having its own rental-housing boom, according to developer DB Services Victoria. More than 900 units were started in the municipality during the first eight months of the year. Rental housing projects in the city are lined up for the next five years – so much so that DB says it’s had to turn away new project proposals. Building permits in Greater Victoria have grown nearly 30 per cent month-over-month.
DB Services is currently constructing three rental projects in the region, including the 93-unit The Arc on Hockley Avenue, Brock Commons student residence and the 90-unit Danbrook One on Claude Road.
Meanwhile, implementation of recommendations from a new Rental Housing Task Force by the BC NDP government could limit a landlord’s ability to increase rents when a tenant vacates, cautions LandlordBC.
As well, a proposed new Victoria bylaw requiring 10 per cent to 15 per cent of all new condo projects to classify as affordable units may present developers and landlords with new challenges. An estimated 6,200 affordable housing units are needed to satisfy demand, according to a report from Colliers International’s Victoria office. A healthy share of condos end up on the rental market.
“We want to make sure that [the bylaw] doesn’t stop developers from building condos,” Kathy Hogan, executive director of the Urban Development Institute (UDI) capital region branch, told the Times Colonist. “If the policy is too stringent, then it could have negative connotations on that.”
Hogan is calling for more consultation on the City of Victoria policy introduced in September, which would require strata developments of 40 or more units in the city core to have 15 per cent be classified as affordable. Developers with projects under 40 units would be able to make a cash contribution in lieu of the affordable units.
Victoria city council is also considering instating a size minimum for all affordable housing built in the city’s downtown core. The city currently imposes a minimum size of only 355.2 square feet in multi-use projects outside of downtown. The Victoria Downtown Residents Association would like to see a limit enacted to curb the influx of micro-units cropping up of late. The UDI is worried about this idea as well.
“This type of requirement will limit the ability of developers to bring a diverse housing supply to market and limit the ability of developers to respond to market conditions,” Hogan said in a letter to council.
But if sales volumes are any indication, developers should still bet on Victoria multi-family projects. Sales for rental apartment buildings in 2017 hit $146 million, up from $127 million the year before.
"With no new office buildings delivered to the market until 2021, tenants with upcoming leases are competing within a very tight market," said Devencore principal.
Vacancy rates for all office classes in downtown Vancouver have further lowered to 4.5 per cent, down from 5 per cent a year ago. Class A office vacancy rates are even lower, at 3.9 per cent. At the same time, Class A average gross rents are continuing to climb with annual rates exceeding $51 per square foot, according to a survey by Devencore, a real estate brokerage and advisory firm.
“The market is showing no signs of slowing down in terms of rental rates. With no major new office buildings delivered to the market until 2021, tenants with upcoming leases are competing within a very tight market,” said Jon Bishop, executive vice-president and managing principal of Devencore’s Vancouver office. “Due to the forecasted high demand of the new developments coming up, we are seeing trends with large space users pre-leasing new AAA-class office space slated to be delivered in 2021 and beyond. In the meantime they are utilizing flexible swing-space provided by third-party space providers like WeWork and Spaces to hold them over until their new offices are completed.
“As vacancy rates continue to fall, it’s not unusual to see tenants renewing leases or even considering a move to the suburbs,” Bishop said. “There is very limited sublease space available in the market and limited direct vacancy in the downtown area.”
Suburban office properties on transit, however, continue to be in high demand, and tenants can expect to pay close to downtown rental rates for these prime locations, Bishop noted.
“With a few years before new supply hits the market, tenants are forced to plan two to three years in advance for their growth and get creative in their search for office space,” Bishop said.