This week’s stories tackle major sales in Vancouver and across Western Canada, including the continued closure of Chevron stations in the Lower Mainland, valued for their residential redevelopment potential. Sites with medium or high-density zoning possibility typically draw much interest in a city where housing it scarce and investors can greatly profit off multi-family or mixed-use strata projects. In the hotel sector, Vancouver continues to see increased demand from foreign investors, while the province’s land transfer tax may be stalling the region’s housing market in a way that does not benefit investors nor homeowners.
Here is Western Investor’s pick of the most buzz-worthy commercial real estate stories.
Two more Vancouver Chevron stations sold for redevelopment – Western Investor
Five more Vancouver Chevron stations have recently been listed for sale, with two sales confirmed already. Chevron has been selling of stations frequently since last year and continues to make a profit off the sites residential development potential.
Two more Vancouver Chevron stations have shut down in favour of potential residential development.
One of the stations, located at the corner of West 16th Avenue and Cambie Street, has already closed in advance of the sale’s completion. The property’s assessed value is $7.96 million – however, sale prices for both of the stations have not been disclosed.
The second station at West 41st Avenue and Oak Street will close Aug. 18 and has an assessed value of $14.61 million.
Earlier this year, Chevron locations on West Georgia and Dunbar Street sold for $72 million and $19.4 million, respectively. The West Georgia site was purchased by Anthem Properties and will be redeveloped into high-end residential towers in conjunction with the adjacent White Spot property. Both locations sold for well above assessed value.
Three other Chevron locations are currently up for sale at Broadway and Alma Street, West 4th Avenue and Macdonald Street and West 59th Avenue and Cambie Street. The stations remain open.
Metro Vancouver’s Kingsway headquarters on the sales block – Business in Vancouver
Metro Vancouver’s soon-to-be vacant building is up for sale, and real estate agents believe the site with draw much interest from investors, who can either choose to continue to operate it as office space in tight market, or redevelop it as residential. Options are plentiful in a region where nearly every commercial sector is experiencing high demand.
Metro Vancouver is making good on its plans not to be a landlord when it vacates its current premises at 4330 Kingsway and 5945 Kathleen Avenue in Burnaby later this year. The regional district listed its properties with CBRE Ltd. last week, hoping to have the properties sold soon after it moves its staff to Metrotower III in late October.
“We think the market is going to be strong,” said Randy Wenger, division manager, properties, with Metro Vancouver. “We think it will be relatively quick, but until the offers start coming in it’s difficult to say. We’re hoping that we can close a transaction by the end of this year.”
CBRE Ltd. vice-chairman Tony Quattrin, who with Jim Szabo is handling the listing, said the properties have many advantages, including ongoing holding income and future redevelopment potential.
Tenant demand is strong. Colliers International reports that Burnaby office vacancies have fallen to 6.9% in the second quarter from 12.3% a year ago. Quattrin said land values are even stronger, thanks to Burnaby’s recent approval of the Metrotown Downtown Plan. The plan allows up to 742,000 square feet of development on the 1.6 acres Metro Vancouver is vacating, nearly triple the existing 250,000 square feet. This results in land that’s “almost worth more than the office building.”
“It’s a good site,” Quattrin said. “I think it will get a lot of interest.”
The properties’ divestment was part of Metro Vancouver’s long-term plan. Speaking in January 2016, shortly after acquiring Metrotower III from Ivanhoé Cambridge, Metro Vancouver said it wasn’t interested in becoming a landlord at its old digs.
“That’s not our core business,” Wenger reiterated last week. “These properties will be surplus, so we’re selling them to get the money to help pay for the building we purchased.”
Jack M. Mintz: Land transfer taxes hurt competitiveness and fail to reduce speculation – Financial Post
It can cost almost $100,000 to move house in B.C. due to the property transfer tax, and an editorial by the Financial Post’s Jack M. Mintz says the tax hurts homeowners and businesses alike. So does it benefit anyone? Mintz doesn’t think so.
Transfer taxes therefore cause people to hang onto their property for long periods, making it harder for new homebuyers to enter the market. These taxes also increase the cost to assemble land and materials to build homes, thereby reducing the supply of property. Even labour mobility is affected as it becomes too expensive to move. If commercial property is also taxed, a business changing ownership could trigger new transfer taxes even though there is no change in the use of the property.
It is therefore not surprising that several recent economic studies have focused on this nefarious tax. Two German studies have found that real estate transfer taxes sharply lower housing sales as people hold property for many more years. Landlords see falling rental prices reducing the incentive to build multi-residential property that is crucial to immigrants and young owners. Other studies in Australia, the U.K. and Canada also find that real estate transfer taxes lower sales substantially.
Real estate transfer taxes also hurt business competitiveness. In Canada, land transfer taxes increase the effective tax rate on new investments by close to 1 percentage point or by 5 per cent. The Australian, U.K. and German effective tax rates on capital each rise by almost 3 percentage points due to their various transfer taxes.
Further, significant tax planning opportunities are available to lessen the effect of real estate transfer taxes, especially for commercial property. Even when ownership changes, it is possible to avoid the transfer tax altogether by having a corporation, trust or a partnership own the property with the ultimate owners selling the property free of transfer tax. In Germany, ownership is based on 95 per cent of the property value — so a company will sell somewhat less than 95 per cent ownership in the property so that the purchases can avoid the tax.
From a tax policy perspective, transfer taxes, relics of stamp duties introduced centuries ago, have little to commend them. When governments raise revenues, it makes sense to tax people according to their well being as measured by their enjoyment of goods and services, their income or even by the value of property (wealth). Whether a household or business decides to move or change use of a property, it is not clear at all why they should be taxed.
The only argument for real estate transfer taxes is to reduce speculation in markets. Several recent studies, however, have suggested that such taxes ultimately have little impact on price volatility since more informed speculators are driven out of the market, leaving the ill-informed left to buy and sell property.
Foreign investment continues to bolster Canadian hotel market – Western Investor
Two-thirds of Canadian hotel transaction capital came from foreign sources in 2016 – and 2017 is on track to be another banner year for the country’s lodging market.
Canada’s lodging market provides foreign investors with an attractive, steady flow of capital thanks to stable political and legal environments, according to Colliers International. Colliers’ 2017 Canadian Hotel Investment Report states Canada’s hotel market recorded $4.1 billion in transaction value in 2016 and is on track to exceed $3 billion in volume in 2017.
“2017 is shaping up to be another banner one for the hotel industry,” said Robin McLuskie, vice-president, hotels, for Colliers International. “We expect foreign capital to keep flowing into our borders. We anticipate annualized supply growth to reach between 1.5 per cent and 2 per cent in the next two to three years. Hard-hit energy markets are rebounding, setting up these regions for increased activity. Plus the combination of Canada’s weak dollar and significant promotion around the country’s 150th anniversary should make 2017 a peak year for travel into Canada. These factors put the hotel real estate market on track towards yet another banner year.”
Revenue per available room (RevPAR) grew 5 per cent in 2016. Top-line revenues in Canada have grown by nearly 22 per cent since 2011, according to Smith Travel Research.
Historically, Western Canada average per-room prices have trended higher than those in Eastern Canada. However, limited supply coupled with the oil recession in the Prairies has caused transaction activity to slow in the West.
“Continued declines in operational performance in energy-linked markets including Calgary, Edmonton, Regina and Saskatoon impacted hotel valuations in 2016, however, values are expected to stabilize in 2017,” the report states.
Across all major markets, average room rates and RevPAR are expected to increase in 2017.
