This week’s top stories focus on a variety of sectors, beginning with coverage on an ongoing trend in the multi-family market that sees apartment sales slowing, while dollar values increase. Meanwhile, commercial demand, particularly in industrial developments, as seen Vancouver’s commercial real estate investment outpaces Toronto. In the residential arena, mortgage lending rates have remained constant, through rate hikes may be coming down the pipeline. In Surrey, the residential squeeze may only become more congested if transit doesn’t keep pace.
A new 2017 Q3 report by The Goodman teams shows a 23 per cent decrease in Metro Vancouver apartment sales and cautions that municipal intervention may hinder the proposed new supply. This follows much the same pattern has last quarter’s findings.
Multi-family sales have slowed by a third year-over-year, possibly signaling a shift in investor sentiment, according to a new report by HQ Commercial's the Goodman team.
The Goodman team’s third quarter Greater Vancouver report suggest that the 23 per cent decline in rental apartment sales may be due to recent interest rate hikes, stricter mortgage stress tests and government intervention.
Goodman believes these factors may have caused prospective buyers to remain as tenants, slowing down sales but increasing the value of multi-family stock.
“It’s expected many will forgo buying and continue renting. New mortgage stress-testing is certain to impact the ability of all types of home purchasers,” the report states.
New stress test requirements will see prospective buyers with less than 20 per cent down having to qualify for a mortgage at Bank of Canada’s five-year posted rate of nearly 5 per cent. The rate is higher than the discounted rate applicants would pay in reality.
Sales have decline from 148 buildings in Q3 2016 to 114 Q3 in 2017. Meanwhile, dollar volumes increased 35 per cent, led by in-demand redevelopment site sales. The majority of sales took place in Vancouver Eastside and Burnaby. Both areas have a supply of older apartment buildings ripe for redevelopment.
Dollar volumes in the suburbs – including Burnaby, New Westminster, North Vancouver, Surrey, White Rock, Maple Ridge and Coquitlam – have increased 86 per cent, while Vancouver values have increased a more modest 7 per cent. Total Matro Vancouver dollar volumes have increased from $1.24 billion in 2016 to $1.69 billion in Q3 2017.
New supply is projected for Metro Vancouver’s rental stock by 2022, to the tune of 7,724 units in Vancouver and 8,454 across the suburbs. However, Goodman cautions that municipal intervention may prevent new projects from materializing.
“Are Metro Vancouver’s municipal governments really doing enough to address the dire shortages of market rental housing? We think not,” comments Goodman. “Proposed projects in our chart could quickly disappear should public officials adopt punitive polices that create disincentives for developers to build rentals.”
Despite a much smaller population, Vancouver has surpassed Toronto in investment activity by more than $1 billion, according to a new report. This may be thanks to a lack of supply in popular sectors such as industrial and Class A office space.
Commercial real estate investment in Metro Vancouver – population 2.4 million – have surpassed that of Greater Toronto – population 6.4 million – for the first time.
In the first six months of this year, Vancouver, with a record-setting $7.8 billion in commercial investments, outpaced Toronto, which posted $6.5 billion in similar spending, according to Avison Young.
Vancouver captured a 41 per cent share of the national market in commercial real estate investments, while second-place Toronto made up 34 per cent.
Vancouver commercial investments surged 75 per cent from a year earlier to take the national lead, Avison Young reported.
With the exception of Ottawa (which saw investment activity plunge 57 per cent), the remaining markets studied in the national report – Calgary, Edmonton and Montreal – all recorded increases year-over-year, and each exceeded the $1-billion mark.
In Vancouver, office investment rose 3 per cent to nearly $2 billion by the midway point of 2017 compared with $1.9 billion in first-half 2016. Retail investment exploded by 285 per cent to almost $3.1 billion from $799 million in the first half of 2016.
Multi-family investment climbed 146 per cent to $1.5 billion from $629 million one year earlier, despite supply remaining highly constrained. Industrial investment also increased, rising 44 per cent to $668 million in the first half of 2017 from the same period in 2016. The value of industrial, commercial and investment land acquisitions dropped 18 per cent year-over-year, to $527 million.
The biggest Vancouver transactions in the first half included the sale of a Cadillac Fairview office portfolio to an Ontario pension group for $1.25 billion, and the sale of the Oakridge Centre shopping mall by Ivanhoe Cambridge to QuadReal Property Group for more than $961 million, Avison Young reported.
Vancouver leads the pack when it comes to national industrial development, while Surrey residential stock is still lagging behind the city’s population, Business in Vancouver reports.
The tables turn, however, when it comes to industrial real estate, which CBRE says has been on a “yearlong bull run” with 11.7 million square feet under development countrywide. This is only slightly more than the 10.3 million square feet of office development. Vancouver, however, is industrial king, claiming 39.1% of new space versus Toronto with 35.7% of new construction.
Vancouver’s share works out to nearly 4.6 million square feet, much of it speculative. Nevertheless, a dearth of space means that 42% has commitments and absorption of the rest should continue. (The average absorption rate for the year is more than one million square feet per quarter; so long as there’s space, there’s absorption.)
Colliers International, for its part, points out that demand is so great that strata-titled units at Annacis West Business Centre, 1600 and 1610 Derwent Way in Delta, have been quickly snapped up by former tenants. PCI Developments Corp. engaged in what Colliers terms “a creative approach to a real estate investment,” because PCI bought the strata-titled property – formerly held by a single owner and leased to tenants – expressly for sale, knowing the strength of the market.
While other builders have successfully developed and then sold strata-titled properties, PCI avoided the hassle of construction while still reaping what Colliers says “appears to be an excellent return.”
A case in point is 6-1600 Derwent Way, a 3,811-square-foot unit with an assessed value of $386,600.
BC Assessment Authority records indicate that it sold for $618,910 on February 3, 2017. The unit is now listed for sale with Jones Lang LaSalle for $988,000.
Surrey’s East Clayton neighbourhood was originally proposed 20 years ago as an environment-friendly neighbourhood that would have twice the density of a traditional subdivision. Provision was made for secondary suites and coach houses, as well as green infrastructure to handle storm water and other concerns.
Ground broke in 2002, and today the development has far exceeded expectations – so much so that in the past three years Surrey has received 7,600 complaints regarding parking violations despite the fact that each residence has two parking spots, with a third possible, and 1.25 on-street parking spaces.
An additional 400 complaints have been received related to illegal suites.
Recently, the complaints led to notices being sent to 175 units advising them to comply with city bylaws or shut down.
With homelessness in Surrey now totalling 602 residents, up from 403 in 2014 (a 49% increase), critics say the move to shut down the units doesn’t make sense.
“The density model in Clayton Heights is the model for the future so there is a certain irony that instead of focusing on housing Surrey families, we’re focusing on their cars,” said David Hutniak, CEO of LandlordBC, in a statement calling for the immediate legalization of the non-compliant suites.
But he said last week that extra density means congestion if transportation networks don’t keep pace.
“Surrey obviously needs transit,” Hutniak said. “We continue to want to support the community, the city and the mayor to advocate for transit – that’s a major reason that there’s these challenges in that community.… They’re ahead of the curve, but because of cars, people are getting evicted, which is really unfortunate.”
The Bank of Canada overnight lending rate has risen twice over the past year, from 0.5 initially to 1 per cent presently. Worries of further hikes may have been quelled, but only for now.
Holding the overnight interest rate steady in its October 25 announcement, the Bank of Canada warned that future rate hikes would be likely, although at a more tentative pace than previously anticipated.
Following two interest rate hikes in July and September at consecutive policy meetings, the central bank said it had decided to hold off with another rate hike – for now. This corresponds with the BC Real Estate Association’s prediction in September that interest rates won’t rise again until 2018.
In a statement Wednesday, the bank said that its “current stance of monetary policy is appropriate” – suggesting that it will continue with its plan to raise interest rates further.
However, the bank added, “While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate.”
The bank said its decision was partly affected by household debt levels, pointing out, “Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates. Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.”