Here is Western Investor’s pick of the top commercial real estate stories published this week.
Vancouver condominium projects are seeing even slower absorption than rest of region, Joannah Connolly reports.
The rate at which presale condos and townhomes are being snapped up has plummeted across Greater Vancouver and the Fraser Valley – especially in downtown Vancouver, according to a July 18 report by a real estate marketing company.
MLA Advisory, the research arm of marketing firm MLA Canada, said in its mid-year report that the absorption rate of newly released presale units in June 2018 across the Lower Mainland was just 50 per cent, compared with 94 per cent in January this year. The monthly absorption rate is the proportion of units that are both released and sold within that month.
Overall, from January to June inclusive, 74 per cent of the 7,753 presale unit released in the Lower Mainland were sold. However, the pace of sales is slowing, with 79 per cent sales in 2018’s first quarter, and 69 per cent in Q2.
MLA said the more modest pace of sales was good news for homebuyers and the industry.
“The current pre-sale landscape is shifting from its once unsustainable, hyperactive growth to a balanced, more normal market,” said Suzana Goncalves, chief advisory officer and partner at MLA Canada. “This is good news for everyone to ensure more modest and realistic price growth, more choice for consumers and the need for higher quality product from the industry. The economic fundamentals including low interest rates, steady employment landscape, and continued demand to move to our sought-after city will allow for a steady shift into a balanced market.”
Local market divergence
Some local markets bucked the region’s overall trend, however. Burnaby North, which is seeing unprecedented levels of residential development at Brentwood and Lougheed, had a January-thru-June sold rate of 91 per cent, out of nearly 1,600 new homes released. Most of these units were concrete condos in Brentwood, according to MLA.
MLA’s report said that New Westminster, West Coquitlam and North Surrey also saw strong presale activity, “proving that demand remains high for transit-oriented communities.”
The City of Vancouver, on the other hand, is seeing presales of 61 per cent in East Vancouver projects, 54 per cent for new condo developments on the West Side, and just 34 per cent downtown, according to MLA research.
MLA's report said, "Vancouver proper is seeing a decline in pre-sale absorption as price levels have reached a significant threshold. Some potential buyers in Vancouver are seeking more affordable options with a perceived higher [appreciation]."
The lowest absorption rate was seen in Port Coquitlam, at just 19 per cent of units sold between January and June. Richmond’s rate was also low at 39 per cent.
Investors selling assignments
The anticipation of slower sales and potentially lower prices could be encouraging some pre-sale buyers to sell their sales contracts, known as assignments. A look at listing services Craigslist, Kijiji and Vancouvernewcondos.ca on July 18 found 587 presale condos being offered from West Vancouver and Squamish to Surrey and Langley by both real estate agents and private owners.
The February 20 increase in the B.C. foreign-home buyer tax from 15 per cent to 20 per cent could also be a factor in slower pre-sales. Since 2016, the share of new condominiums sold to foreign buyers reached 16 per cent across Metro Vancouver and accounts for about one-quarter of buyers in Richmond and Coquitlam, according to Canada Mortgage and Housing Corp.
Multi-family assets continue to be crowd favourite among investors, while sales in office and industrial properties slow due to limited supply.
Sales volumes in nearly every commercial real estate sectors have declined in the second quarter of 2018 – though not for a lack of demand, according to a new report.
The growing disconnect between supply and demand in Canadian real estate has lead to a decrease in sales velocity and an acceleration of lease rates, according to research by the Morguard Corporation.
"A drop in transaction volume in the second quarter is very much a function of low product availability rather than a drop in demand," said Keith Reading, director of research at Morguard. "With quality office and industrial space at a premium, apartments are a crowd favourite as investors search for yield."
Office sales have dropped nearly 50 per cent across Canada year-over-year, while industrial volume has plunged 17.8 per cent. Meanwhile, multi-family sales increased 17.5 per cent.
Average sale prices for multi-family properties also increased year-over-year, from $8.5 million in the first half of 2017 to $13 million during the same period of 2018.
Morguard expects investor sentiment in residential rental properties to remain strong into next term.
Senior housing rents are increasing, while labour shortage continues to impede new developments, Peter Mitham reports.
Seniors market tightens
“When I was a child, I talked like a child, I thought like a child, I reasoned like a child,” runs the old saying, and for renters in Vancouver, they likely paid rents appropriate to a child.
But with greater age comes greater rents, and that should spawn a new way of thinking for all those who crack jokes when the city defines an affordable one-bedroom rent at $1,730 (east side) or $1,903 (west side). According to Canada Mortgage and Housing Corp. (CMHC), a one-bedroom independent-living unit for seniors in the city averages $4,903 a month, up 18% from last year.
On the plus side, while the CMHC reports that the average renter has just 0.9% of the rental stock to choose from, vacancies in Vancouver seniors housing average 3.9%. However, that’s down from 4.6% a year ago. The sharpest decline was among one- and two-bedroom units.
The market is tightest for cheaper units, especially those renting for $1,900 to $2,399 a month, which have a 0.6% vacancy (solid information is not available for other segments below $2,900 a month).
However, CMHC data for the Vancouver Coastal Health region points to an overall drop in the number of non-market (subsidized) living units for independent seniors.
In 2013, there were 1,089 non-market independent-living units; in 2017, that number had fallen to just 828.
The drop came even as the total number of spaces for seniors – everything from independent living to units where residents had access to 90 minutes or more of care each day – rose and were occupied by more people.
Between 2013 and 2018, the count rose from 4,018 units housing 3,945 people to 4,359 units housing 4,524 residents.
A lack of trades seems to be a perennial cry among contractors, whether because of strong demand or the attrition of an aging workforce. The dire predictions of a report BuildForce Canada – formerly known as the Construction Sector Council – issued in 2009 have largely come to pass, however.
Back in 2008, construction-sector employment was pegged at 132,460 people. By 2017, the report forecast employment of 138,886 and a tight labour market as accelerating retirements boosted replacement demand alone to 3,112 workers a year.
The latest report, issued this past January, says the B.C. construction market has rocked on to a whopping employment of 173,600 people. But the average age of workers also increased, to 42 (from 40 in 2008). Over the next decade, BuildForce expects 21.6% of existing trades to retire – about 40,800 people – while the sector welcomes just 32,800 new entrants.
The pressure is already being felt. To its credit, the 2009 report was largely correct in anticipating today’s shortages. The one exception was for drillers and blasters, where the shortage isn’t yet as great. However, seven non-residential sectors are faring worse than expected: elevator mechanics, power-line and cable workers, heavy equipment mechanics, ironworkers, plasterers and drywallers, steamfitters and pipefitters, and tile installers. These trades are generally not available in local markets, and in the case of power-line workers, the quest has extended to “remote markets” to meet demand.
A particular challenge is matching interest among new entrants with demand.
“It’s not a given that they’re following the same labour market trends,” explained Chris Atchison, president of the BC Construction Association. “A lot of people are going and taking the options that they’re self-determining and deciding to pursue those career pathways.”
Concord Pacific fights Porteau Cove mining permits in BC Supreme Court, BIV reports.
When stonemason Jody Parry applied for mining permits on lands near Porteau Cove in Squamish a few years ago, he had his eyes on mineral-rich boulders littering the barren landscape for his company, Bellaroc Masonry, to source its granite.
“That’s what we do – we break rocks and put them on houses,” Parry said.
A Squamish resident of nearly 40 years, Parry represents the third generation in the family business.
The local stonemason is up against one of the country’s largest real estate developers in a court fight over Howe Sound property.
Parry knew the site where he’d applied to mine was once a sand and gravel pit run by John Deeks, whose employees lived in a small community in Porteau Cove until the Great Depression. Deeks’ legacy in the area remains, with a lake, a peak and a creek bearing his name.
But what Parry didn’t know is that his permits, good for five years, were stepping on the toes of Concord Pacific, one of the country’s largest developers. Dating back to 2004, Concord’s plans for a 1,400-home community in Porteau Cove were sunk by the global financial crisis of 2008. Since then the lands have sat empty and were mired in controversy when the company bought out its former development partner, the Squamish Nation, for $1.
“I didn’t even honestly know who Concord was at that time,” Parry said in a phone interview.
Concord is taking the province’s Chief Inspector of Mines to court over Parry’s mining permits, claiming they imperil the company’s plans for the site, which it hopes to start building on in 2019. Concord, through a numbered company and a limited partnership, filed a petition in BC Supreme Court on June 18, claiming it has spent $33 million acquiring and developing the lands so far. The petition states construction was originally set to begin 10 years ago but was “temporarily put on hold” because of the Great Recession.
“Since then, the real estate market in or around Vancouver has made a dramatic recovery.”
Concord, which unsuccessfully appealed to the province’s Chief Inspector of Mines to have Parry’s mining permit revoked, claims it was unaware of that permit until it was notified of his plans in April 2018. It claims that five-year permit is “unnecessary and unreasonable” and that mining “will adversely impact Concord’s rights, privileges and interests, including Concord’s ability to obtain funding and/or investment for the lands.”
The company’s website says the Porteau Cove development is “coming soon” and that it will be “the ideal community for those that appreciate and play outdoors and want to be close to all downtown Vancouver has to offer.”
Concord didn’t make anyone available for an interview when contacted by Business in Vancouver. The company’s lawyer, Hein Poulus with Stikeman Elliott, did not return calls for comment.
“The project right now, we don’t have any current updates on it. We still do own the site, so it may be coming up in the future,” an unidentified sales employee told BIV.
Meanwhile, Parry and Bellaroc have applied to the Surface Rights Board to compel Concord to allow access to the lands, and the board has deferred issuing a decision until the company’s petition is heard in court. Parry said he understands the company’s position and is leaving it up to the Ministry of Energy, Mines and Petroleum Resources and the Surface Rights Board before he starts drilling. He insists the permit process was all above board, having met all the environmental standards and requirements to consult with First Nations.