Aberdeen Centre in Richmond, B.C., city picked as our top destination for real estate investors
This is where Western Investor believes real estate investors have the best chance to make the most money over the next two years
By Frank O’Brien
Welcome to Western Investor’s second pick of the top towns and cities in Western Canada where, in our opinion, real estate investors in both the commercial and residential sector have the best chance to profit. We compile this list every two years and our outlook is based on a two-year horizon, though many of these top markets should also perform long-term.
No. 1: Richmond
Richmond catapults to the top of the list due to its underlying economy and startling demographics. In many ways, the city represents the future for Metro Vancouver.
Richmond is North America's most Asian city – 50 per cent of residents identify themselves as Chinese, and the influence has created the most diverse and unique – and potentially deep - real estate market in the West.
It is in Richmond where retail real estate space in Asian-flavoured shopping centres sells for more than $1,000 per square foot, the highest in Western Canada.
It is where a 4.9-acre residential site on No. 3 Road, the city’s main thoroughfare, recently sold for $69 million. [Yes, that pencils to nearly $14 million per acre.] Richmond is home to the largest industrial buildings in B.C. and where Canada Post has just opened a 700,000-square-foot processing facility.
Richmond is where U.K.-based retail giant McArthurGlen is building a 240,000-square-foot outlet mall, the first in the province. Joan Jove, director of development for McArhurGlen’s first Canadian project explained why Richmond was chosen over, say, Toronto. “There is a strong Asian demographic [which he said are brand conscious] a lack of outlet malls and a strong tourist industry.”
McArthurGlen’s new mall is being built next to a Canada Line transit station, just two stops away from North America’s Number 1 ranked airport, Vancouver International which itself generates nearly $12 billion a year in economic activity.
Richmond’s population is now over 200,000 residents and expected to grow by 40 per cent in less than 30 years.
And Richmond is where the average detached house price has soared 38 per cent in the past five years, to just shy of $1 million.
No. 2: Calgary
Last year Calgary had more new office construction than Toronto and its residential real estate market is considered to have the strongest upside in the country. A caution on oil prices – now at their lowest level in two years – is all that kept Alberta’s biggest city out of our No. 1 real estate ranking for 2014.
That said, Calgary remains an impressive real estate play. Nearly 3,000 people are moving into the city every month – the 2014 influx is the highest on record – and the rental vacancy rate is a tight 1.4 per cent. There are no rent controls – and apparently no end to bold real estate speculation.
In suburban Calgary, Qualico Communities is building the instant community of Harmony, with 3,500 homes on a 1,700-acre site with a 135-acre lake, a 138-acre commercial campus and a 72-hole golf course, the largest in southern Alberta.
Downtown, Vancouver-based Concord Pacific has launched a high-end residential development on the banks of the Bow River with 200 residential units at record-breaking – the penthouse is $13 million - prices.
Calgary’s commercial investment market is on track to top $1.2 billion this year. Land prices are startling. This year a 12-acre retail site sold for $70 million and a high-density, one-acre residential site on 11 Avenue SW sold for a $30 million. House prices are up 9 per cent from last year and Royal Bank echoes other analysts is forecasting continued price acceleration across the real estate spectrum.
No. 3: Surrey
Surrey, B.C.’s fastest-growing and second-largest city, remains in our top five. The city has seen seven consecutive years of record-breaking construction, with value now exceeding $8 billion.
Much of the spending has been in public projects, including a new city hall, a new library, the half-a-billon dollar expansion of the Surrey Memorial Hospital and expansion of Simon Fraser University and the RCMP headquarters.
While the industrial market remains strong, Surrey has slipped in our real estate ranking this year due to a glut in the office and multi-family markets, both of which we believe will cool real estate returns over the next year.
Surrey’s office vacancy rate has soared to 23.2 per cent as of mid-year, the highest level in Metro Vancouver, and there is still 164,000 square feet of new office space to be delivered by 2015. Returns on office property, therefore, are expected to be low.
Ditto for the condominium and townhouse sectors, which account for half of Surrey housing’s market. Condominium sales were down 12 per cent in August compared to a year earlier, with townhouse sales off 7.7 per cent, and prices have fallen or flatlined in both markets from 2013. Meanwhile, 1,022 new high-rise condominiums have begun marketing in North Surrey alone in the past year.
No.4: Edmonton
Alberta’s capital is in the midst of the largest development cycle in years, marked by the Edmonton Arena District that will include a new hockey arena and the second tallest office building in Western Canada. Building permits through the first half of this year were $3.5 billion, just behind Vancouver.
Posting the highest gross national product of any Canadian city, Edmonton offers a sterling advantage for real estate investors: relatively low prices with strong upside potential.
Edmonton’s median home price, at $368,000, is far below Calgary or Vancouver, and the average price per-suite for a rental apartment building is $122,400, the lowest among Canada’s top-tier cities. The rental vacancy rate is a tight 1.4 per cent.
The industrial market also has potential. Spec developers have had difficulty keeping pace with demand, which now equates to 400,000 square feet being leased up every quarter. Industrial land prices from $350,000 per acre are among the lowest in major Canadian cities.
No.5: Cold Lake
Cold Lake, often called “the second Fort McMurray” because of its proximity - and potential - comparable to Alberta’s oil sands centre has matured into a stand-alone economic powerhouse.
The city is preparing for the annexation of more than 3,000 aces of land in the face of white-hot real estate demand and a soaring population. The unemployment rate is 3.4 per cent, about half the national average.
About 550,000 barrels of oil per day are generated in the region and planners see that doubling over the next 30 years.
We believe the potential for real estate returns over the next year are positive. The average price for a house shot up over $50,000 in 2014 to $276,515 and the rental vacancy rate is near zero; and there is strong demand across the commercial and industrial real estate sectors.
No.6: Estevan
Since we placed Estevan in our real estate rankings two years ago, property values have soared and bigger investors have taken a position in this small city close to the Bakken oil fields. There are generous incentives – up to $10,000 “per door” for eligible rental investments and three-year tax holidays for qualified commercial projects.
Artis Real Estate Investment Trust recently bought Estevan’s major shopping mall for $10.1 million as one indication of the action.
Estevan is one of the largest cities in oil-rich Southeast Saskatchewan, responsible for 40 per cent of provincial oil sales.
It is also the site of the world's largest carbon capture storage facility. While the residential rental vacancy has risen due to a rush of new home building, we believe Estevan will prove a prime investment in the commercial and industrial market over the next two years.
No.7: Fort St. John
The second-largest city in Northern British Columbia, Fort St. John is the centre for the giant Montney Basin natural gas fields and BC Hydro’s proposed $7.9 billion Site C dam, which is nearly on its doorstep.
Shell Canada and the Oil & Gas Commission have opened offices, a new car dealership is complete, a Holiday Express hotel has opened, a second hotel is under construction and the Totem Mall is expanding, as is Walmart.
There is a shortage of serviced land in Fort St. John, meaning that 4.5-acre industrial lands outside of town are selling for an average of more than $760,000. With a projected doubling of the region’s population, Fort St. John offers real estate investment opportunities, especially in retail and rental housing.
No.8: Okotoks
Okotoks, just outside of the city of Calgary, is a residential real estate play. The second quarter of 2014 saw a new high for home sales, a 35 per cent increase from the same time last year. There are only 300 serviced residential lots ready for construction at the moment, which is less than half of what was available at this time in 2012. House prices are up 5 per cent since 2013, to $403,500, and we forecast they will ramp higher over the next two years. Okotoks is moving to annex 33 quarter sections – more than 5,000 acres –, which would set the stage for a new power centre in southern Alberta.
No.9: Saskatoon
The largest city in Saskatchewan is drawing record-levels of in-migration, which has resulted in a strong retail and housing markets. The retail sector has a 10.8 million square feet but only 2.5 per cent is vacant. So far this year, lease-up has hit 166,000 square feet, up from 64,500 square feet of a year ago. According to recent studies, the city needs at least 600,000 square feet of new retail space.
This year, 3,400 new homes will break ground in Saskatoon, up 5.3 per cent from 2013 and this is expected to surpass 7,000 units annually in 2015 and 2016. Still, with an average price of $345,000, Saskatoon has among the lowest housing prices of any major city in Canada. The city offers generous incentives to builders of rental housing, yet the vacancy rate is a fairly right 3.3 per cent.
No. 10 Red Deer
Red Deer is halfway between Calgary and Edmonton and smack in the headlights of real estate investors. The city is forecast to see economic growth of 3.5 per cent this year and next. With an average household income of $94,000 and one of the fastest growing populations in Alberta, the city is a magnet for residential investors, but the industrial sector also holds potential. The industrial vacancy rate is a tight 3.6 per cent and space is leasing at a pace of nearly 30,000 square feet per month.
OUR TOP TEN TOWNS
1 Richmond
2 Calgary
3 Surrey
4 Edmonton
5 Cold Lake
6 Estevan
7 Fort St. John
8 Okotoks
9 Saskatoon
10 Red Deer
