Vancouver real estate stable now, set for cyclical upswing
This what condos look like in Vancouver … Seriously, if you don’t tell you, I thought I am looking at some place in China.
VANCOUVER — A tight supply of commercial real estate in Vancouver and across Canada limited sales activity from January to June 2013 – with the exception of the Greater Toronto area, Winnipeg and, surprisingly, Hamilton-Burlington, for years an investment wallflower, according to RE/MAX’s Commercial Investor 2013 report.
Across the country, real estate resilience persists
Canadian house sales continued to be strong in October, and economists are watching to see if the strength persists through to the new year.
Vancouver prices escalated strongly from 2010 to 2012, only to start slowing down in mid- to late 2012, partly “as a result of Chinese investments plateauing,” says Elton Ash, RE/MAX’s regional executive vice president, Western Canada. “The Chinese realized they were pushing market themselves, bidding against each other. Since then, we’ve had stabilization.”
Still, as the report notes, activity “is occurring, especially in new and upcoming areas, like Downtown South, that are experiencing gentrification.”
Apartments and multi-family residences are particularly popular with buyers, says Moojan Azizi, owner/managing director, RE/MAX Commercial Advantage, Vancouver. “[They] are always a safer investment as vacancy rates are low, there is always a demand, and for many they are too expensive to buy. Also, if a buyer has a vacancy, all they need to do is change the carpet and the paint; maybe upgrade appliances. Commercial [units have] longer vacancies, and it’s more money to renovate.”
Looking ahead for Vancouver, Azizi cites such developments as Bjarke Ingels’s twisty-design, mixed-use, 52-storey Westbank tower at the north end of the Granville Bridge, Concert’s 194-unit, 33-storey condo project Salt tower at Hornby and Drake, and the Bonds Group’s 328-unit, 41-storey condo project Tate on Howe at Howe and Drake – “all within a few blocks of each other.”
Azizi predicts, “With several new office buildings being built, there will be more vacancy in the office market. With rising interest rates, cap rates will increase. But Vancouver and surrounding areas will do well as Canada – in particular, Vancouver – is a safe place to put your money. We have a stable banking system, and real estate is limited by water and mountains. And face it, when it’s not raining, it’s the greatest place to live!”
No argument from immigrant entrepreneurs bringing wealth in, especially from India and China. And, says Ash, many of these entrants into commercial real estate are questioning, “ ‘With the stronger Canadian market, and my product selling well, why pay a lease? Why not pay a mortgage?’ Of course, the other thing that’s pushing that is low interest rates.
“Every city has individuals or family corporations that have been long-term landowner developers. Many are third-time generation. They bought land to build and develop a lease. Then you get a business owner who wants to own – and there’s pressure on the industry. There’s competition for undeveloped land among guys who’ve always been there with the owner-operators.”
The result, through 2014-15, could be upward pressure on pricing. On the other hand, Ash says, “Everything is cyclical. Prices go up. Cap rates don’t. People reach a comfort level and don’t want to go beyond that.”
In the case of the GTA, it was American retailers who helped drive volume up almost 28 per cent over 2012 levels to $7.7 billion. “American retailers are looking favourably into moving into Canada. And the GTA is the largest centre, so that’s where they’re going to focus on growth.”
U.S. investors are swerving their gazes northward for two reasons, Ash says. “Canada has bucked the [worldwide] trend with strong economic performance. And, our weakening dollar helps our manufacturing sector, especially small manufacturers competing with the Chinese market. Our dollar will continue to weaken as long as the Bank of Canada keeps their record-low interest rates down.”
Long-ignored Hamilton-Burlington chalked up a 15-per-cent increase in the amount of commercial units sold. “Hamilton-Burlington has been an economic sidewater since the steel belt was hit hard a decade ago,” Ash relates. “The sexy place to be was Mississauga, which had huge growth over 10 to 15 years. In Hamilton-Burlington, real estate value remained stagnant.
“Then, as prices started to rise in Toronto and Montreal, people started saying, ‘Hey, what about Hamilton?’ That has driven the market in the past year.”
Maybe the real surprise is that the rush of activity didn’t happen sooner. As the report notes about Burlington, for example, buyers are “capitalizing on lower real estate values in one of the top mid-sized cities in Canada. Transportation access is also an added incentive, given the proximity to major arteries and the U.S. border.”
In Winnipeg, though the number of sales dropped 15 per cent, dollar volume rose nine per cent. “Winnipeg has always historically been a steady, stable market,” says Ash. “And the Province of Manitoba has been aggressive with its policies in attracting immigrants. Manitoba has worked hard to attract sound economic individuals with higher worth. Strong entrepreneurial activity has really boosted the market there.”
There’s also a coattail effect at play. Being Canada’s mid-point, Winnipeg is a natural distribution hub, Ash says. As Canada prospers, activity at the hub picks up.