Opinion: Vancouver’s low office vacancy rate disguises empty offices

Darrell Hurst
Western Investor

While the downtown office vacancy rate is sub-10 per cent, up to 50 per cent of tower space is empty as employees continue to work from home

One of the more interesting data points in the unfolding return-to-work phenomenon has been how well British Columbia has performed compared to other parts of Canada. According to Colliers Research, return to work levels for Vancouver overall remain above the country-wide average and have been so for the last two years. This data goes beyond return to office specifically, as it includes all types of work including retail, education, tourism and restaurants. But what is also striking to note is that return to work levels in downtown Vancouver are up 40 per cent from September 2020. And mid-August return to work levels were above mid-April levels, despite summer usually being slower. 

 We know some of the reasons why Vancouver has done so well: Vancouver benefits from a more favorable year round climate and a more robust outdoor economy and lifestyle than in other parts of Canada and so we were less affected by the impacts of COVID-19 than other major markets; Vancouver is also less dependent on transit than say Toronto and thus, we have a greater reliance on private transit which has encouraged more people to drive to work; Vancouver, and B.C. generally, had less depth and duration of restrictions. But despite all of this, the return to office experience is obviously different industry to industry and business to business. 

 What we saw at the start of the pandemic was that the early adopters of work from home policies were primarily anchored in the tech sector. They were also the ones to return to the office more quickly, with in many cases, additional staff, increased office footprints and overall square footage. However, most companies and organizations are still trying to figure out their hybrid and flexible workplace strategies, and that includes re-evaluating their long-term office needs. This predicament is not unique to the tech sector, and the realization, for some, is that they may never return to pre-Covid occupancy levels. This has led to an increased amount of office space being put onto the sub-lease market. 

 Vancouver’s office sector is facing several significant challenges. According to a recent poll conducted by Colliers among several major landlord clients to gauge how they were faring with their tenancies and return to office, what we found was surprisingly low occupancy rates.

Most major landlords in downtown Vancouver are reporting 25 per cent to 50 per cent occupancy levels in an office market with a relatively healthy vacancy rate when compared to other major office markets in North America. Many of the same landlords, who are national in scope with major office holdings in Toronto, are reporting much lower occupancy levels in their downtown office portfolios.

In addition, the amount of sub-lease space that’s been added to the downtown Vancouver office market in just the last few months is similar to what was witnessed at the early stages of the pandemic. The eventual outcome is the likely downward pressure on rental rates across many building classifications, coupled with more opportunities for those tenants used to evaluating fewer availabilities in a much more competitive leasing environment. 

While buildings are seldom ever 100 per cent occupied, these new lower occupancy levels represent a trend that are now having a ripple effect on other sectors, including transportation, retail and the hospitality sectors. Those sectors have and will continue to struggle with reduced pedestrian presence, which has in turn impacted the safety and security of the downtown core.

 Even though Vancouver office space continues to retain and attract tenants, there are signs of headwinds to come in certain building classifications, such as Class B and C office space, including non-view space or poorly improved space, which has become much harder to lease and with elevated levels of competition. An increase in downtown sub-leases means more leased space is being placed onto the market, now accounting for more than a quarter of the vacant office space in the core. 

 However, unlike other major markets including Toronto, New York and San Francisco, Vancouver has proven in past down cycles – like the financial crisis of 2008-09 – to be resilient. With increased immigration, a strong talent pool and our low dollar, Vancouver continues to attract more than its share of larger firms. In addition, even while companies look to retain and expand flexible workplace strategies, they continue to need space for collaboration and connection among employees, paving the way for ongoing demand.

• Darrell Hurst is the senior managing director for Colliers, Vancouver. 

© 2022 Western Investor

Douglas Todd: Canada among most at risk in global housing crunch

Douglas Todd
The Vancouver Sun

Opinion: The housing bubble is bursting – globally. Recent buyers and overstretched investors are in jeopardy because of climbing rates, especially in Canada

Twelve months ago the suburbs of Langley and Mission and even Chilliwack were deluged with buyers. Now global prices are plummeting because of climbing mortgage rates. Chilliwack prices are already down 30 per cent from the peak in February. Photo by NICK PROCAYLO /PNG

Twelve months ago, during the pandemic housing boom, the suburbs of Langley and Mission were deluged with buyers. Anxious bidding wars ensued.

Spurred on by the dream of working remotely, the desire for more living space, unusually high government stimulus and chronically elevated values in core Metro Vancouver, buyers — including investors — were manically driving up prices in the Fraser Valley by more than 20 per cent compared to a year earlier.

The same housing market action, among the most extreme in the world, was happening in Chilliwack, almost a two-hour drive from downtown and where values soared by 30 per cent year over year. And across the Salish Sea on Vancouver Island prices jumped by one quarter.

But the housing bubble is bursting — globally — in a way it hasn’t for decades. The end of a long boom, often taken for granted, appears to be ending.

Recent buyers and overstretched borrowers are in jeopardy, especially in Canada and especially the suburbs.

Oxford Economics sees a global economic slump coming. It blames tighter credit after the pandemic’s extremely low mortgages, which is leading to falling real-estate markets. Countries with the largest share of people investing in housing, such as Canada, will see the biggest impact.

“The most vulnerable economies look to be Canada, Taiwan, Finland, and New Zealand,” says Adam Slater, Oxford’s senior analyst. Royal Bank of Canada economists predict sales in this country will plummet by 40 per cent next year.

Real estate reality: New housing construction has also decreased, along with projections that sales and prices will steadily decline as a recession looms. Photo by NICK PROCAYLO /PNG

Central banks around the world are raising interest rates more rapidly than in almost four decades. Markets that spiked have a sudden cutback of buyers and investors who were seduced by mortgage rates of three per cent. Many can’t afford fixed rates of six to seven.

The average house price in Chilliwack is now down 30 per cent, to $705,000, from its peak in February. Similarly, average values in Langley, of $1 million, reflect a plunge of about 40 per cent from the peak — even while prices in both cities remain somewhat higher than before the pandemic.

Suburban Toronto prices have also been pummelled. Yet it can’t be forgotten that even with the declines of the past half year, Greater Toronto and Metro Vancouver stubbornly retain some of the most unaffordable housing in the world. The benchmark price of all homes, including condos, in Greater Vancouver is still $1.15 million.

Yet the global slump is very real. What’s causing it?

One answer is: What goes up the fastest goes down the fastest. Since 2020 overall prices are up by more than 30 per cent in Canada, the Netherlands and the U.S. Now prices are falling in nine of 18 economically advanced countries surveyed by Oxford Economics. This year the drop has already been 14 per cent across Canada.

Another reason for the anxious exposure of Canadian homeowners is that debt levels here are among the highest in the world. Average household debt in Canada, at 186 per cent of disposable income, is much heavier than in Germany or the U.S.

Canadians are also likely to get more quickly battered by climbing mortgage rates. Fixed-term borrowing is the norm in most countries, especially the U.S. But in Canada half of all mortgages are variable; they float up and down with central bank rates.

What are some impacts on Canada’s real-estate market?

The proportion of condos being bought as pre-construction presales, which are often flipped when completed, has plummeted. New housing construction has also decreased, along with projections that sales and prices will steadily decline as a recession looms.

The interest-rate squeeze is particularly hitting often-distressed investors, who own a whopping 30 per cent of all homes in Ontario and B.C. Their monthly intake from tenants cannot necessarily cover their new mortgage costs.

Some developers, instead of building condominium complexes, are opting for rental towers. That includes Vancouver luxury builder Westbank, which often markets offshore. It just announced it was switching to all-rentals in its 11-tower Senakw project in Kitsilano, which is a partnership with Squamish First Nation. The federal Liberals just gave a record $1.4 billion low-interest loan to Westbank so it could build 3,000 mostly small rental units.

Politicians around the world feel pressure to come up with would-be rescue operations to preserve home ownership, which many voters count on for security.

The International Monetary Fund is urging policy makers to consider protections against rising mortgages. Spain, Hungary and New Zealand are taking up the challenge.

Canada’s Liberal government, in contrast, wants to protect homeowners and the investors who snapped up many dwellings each by drastically increasing the volume of immigrants and temporary workers.

Steve Saretsky’s real-estate report notes Ottawa’s policies led to Canada’s population increasing by a record 700,000 year over year (compared to 250,000 in 2015). Photo by Francis Georgian /PNG

While many question the Liberal strategy in regard to unemployment, wages and housing affordability, they say it is the main thing that could keep overly vulnerable Canadian prices from crashing. Steve Saretsky’s real-estate report notes Ottawa’s policies led to Canada’s population increasing by a record 700,000 year over year (compared to 250,000 in 2015).

“Population growth certainly helps provide a floor under housing,” said the Vancouver analyst. “It doesn’t mean this correction is over, far from it. However, from a fundamental perspective it would be naive to ignore the rate at which this country is growing, particularly in our major urban centres.”

In B.C.’s large cities, where prices remain astronomical and many remain frozen out of ownership, premier-designate David Eby has said high in-migration impels him to urge municipalities to make it easier for developers to erect more dense housing.

The number of newcomers to B.C., most of whom are foreign-born, is reaching new records. (Source: Ben Rabidouxy)

While the former housing minister once championed the foreign-buyers, vacancy and speculation taxes to curb demand, Eby’s current goals include promising a tax on real estate flipping (which can hike prices) and more public funding for housing.

In a global housing world now most strongly characterized by ascending mortgage rates and plunging values, what will be the fate of Canadians who have not had a chance to move into home ownership?

Some believe there will be an upside to the crisis and that lower prices will allow more Canadian young people to buy homes.

While that might pan out for some people who have saved a lot, or have significant help from the proverbial bank of mom and dad, the worry is home ownership ratios in some nations have declined after recessions because of unemployment, wage decline and more onerous mortgages.

In Canada the battle for affordability for a reasonable housing market is far from over.

[email protected]

@douglastodd

© 2022 Vancouver Sun

Parksville 24,209-sq.-ft medical centre sells for $4.5 million

William Wright Commercial
Western Investor

The Vancouver Island office-retail complex includes two buildings, 10 tenants including Shopper’s Drug Mart and professionals, and a 65-stall parking lot in downtown Parksville.

Property type: Office-retail

Location: 154 Memorial Avenue, Parksville, B.C.

Number of tenants: 10

Number of buildings: 2

Property size: 24,209 square feet (approx.)

Sale price: $4.5 million

Brokerage: William Wright Commercial, Vancouver

Broker: Cory Wright , William Wright Commercial; John Hankins, NAI Commercial, Nanaimo, B.C.  (seller’s agent.)

© 2022 Western Investor

Inflation, interest rates create caution in Metro Vancouver’s housing market

REBGV Staff
REBGV

Home sale activity across the Metro Vancouver* housing market continued to trend well below historical averages in October.
The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 1,903 in October 2022, a 45.5 per cent decrease from the 3,494 sales recorded in October 2021, and a 12.8 per cent increase from the 1,687 homes sold in September 2022.
Last month’s sales were 33.3 per cent below the 10-year October sales average.
“Inflation and rising interest rates continue to dominate headlines, leading many buyers and sellers to assess how these factors impact their housing options,” Andrew Lis, REBGV’s director, economics and data analytics said. “With sales remaining near historic lows, the number of active listings continues to inch upward, causing home prices to recede from the record highs set in the spring of 2022.”
There were 4,033 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in October 2022. This represents a 0.4 per cent decrease compared to the 4,049 homes listed in October 2021 and a 4.6 per cent decrease compared to September 2022 when 4,229 homes were listed.
The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 9,852, a 22.6 per cent increase compared to October 2021 (8,034) and a 1.2 per cent decrease compared to September 2022 (9,971).
“Recent years have been characterized by a frenetic pace of sales amplified by scarce listings on the market to choose from. Today’s market cycle is a marked departure, with a slower pace of sales and more selection to choose from,” Lis said. “This environment provides buyers and sellers more time to conduct home inspections, strata minute reviews, and other due diligence. With the possibly of yet another rate hike by the Bank of Canada this December, it has become even more important to secure financing as early in the process as possible.”
For all property types, the sales-to-active listings ratio for October 2022 is 19.3 per cent. By property type, the ratio is 14.3 per cent for detached homes, 21.6 per cent for townhomes, and 23.2 per cent for apartments.
Generally, analysts say downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.
The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,148,900. This represents a 2.1 per cent increase from October 2021, a 9.2 per cent decrease over the last six months, and a 0.6 per cent decrease compared to September 2022.
Sales of detached homes in October 2022 reached 575, a 47.2 per cent decrease from the 1,090 detached sales recorded in October 2021. The benchmark price for a detached home is $1,892,100. This represents a 1.6 per cent increase from October 2021 and a 0.7 per cent decrease compared to September 2022.
Sales of apartment homes reached 995 in October 2022, a 44.8 per cent decrease compared to the 1,801 sales in October 2021. The benchmark price of an apartment home is $727,100. This represents a 5.1 per cent increase from October 2021 and a 0.2 per cent decrease compared to September 2022.
Attached home sales in October 2022 totalled 333, a 44.8 per cent decrease compared to the 603 sales in October 2021. The benchmark price of an attached unit is $1,043,600. This represents a 7.1 per cent increase from October 2021 and a 0.5 per cent decrease compared to September 2022.


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Metro home sales, prices in a six-month downward spiral

Western Investor staff
Western Investor

October transactions down 45.5 per cent from a year earlier as Greater Vancouver housing prices continue to slip lower month-to-month

 Benchmark home price has fallen 9.2 per cent in six months. | Western Investor

A month-over-month sales rally in Greater Vancouver’s housing market failed to mask a six-month downward spiral that saw October transactions fall to near historic lows and benchmark prices drop by 9.2 per cent compared to May of this year.

Total October sales, at 1,903, were up 12.8 per cent from a month earlier as buyers tried to get in before a late-October interest rate hike, the sixth in nine months.

Right on cue, the Bank of Canada raised the overnight lending rate by 50 basis points on Oct. 26, pushing the prime rate to 3.75 per cent.  This drove typical five-year mortgage rates above 5.5 per cent, a 100 per cent increase compared to the start of this year.

The Real Estate Board of Greater Vancouver (REBGV) reports that October residential home sales were down 45.5 per cent compared to October 2021, but up 12.8 per cent from the 1,687 homes sold in September 2022.

October sales were 33.3 per cent below the 10-year October sales average.

 “Inflation and rising interest rates continue to dominate headlines, leading many buyers and sellers to assess how these factors impact their housing options,” said Andrew Lis, REBGV’s director, economics and data analytics. “With sales remaining near historic lows, the number of active listings continues to inch upward, causing home prices to recede from the record highs set in the spring of 2022.”

There were 4,033 new listings for detached, attached and apartment properties on the Multiple Listing Service (MLS) in Metro Vancouver in October 2022. This represents a 4.6 per cent decrease compared to September 2022.

In total, 9,852 homes are for sale across Greater Vancouver, a 22.6 per cent increase compared to the end of October 2021 and a 1.2 per cent decrease from September 2022. Less than one in five (19.3 per cent) of listed homes sold during this October, and the sales-to-listing ratio dropped to 14.3 per cent for detached houses, according to REBGV data.

The composite benchmark price for all residential properties is currently $1,148,900. This represents a 2.1 per cent increase from October 2021, but a 9.2 per cent decrease over the last six months.

Sales of detached houses, with 575 transactions in October, were down 47.2 per cent from October of last year and 10 per cent lower than six months earlier. With a current benchmark price of a $1.89 million, the typical detached house has shed about $180,000 in value since May of 2022.

Townhouse sales in October totalled 333, down 44.8 per cent from October 2021, while the benchmark price dipped 0.5 per cent from September 2022, to $1.04 million.

Sales of condo apartments reached 995 in October 2022, a 44.8 per cent decrease compared to the 1,801 sales in October 2021. The benchmark price of an apartment home is now $727,100. This represents a 5.1 per cent increase from October 2021 but a 6.3 per cent price decline from six months earlier. Currently, the sales-to-listing ratio for strata homes is averaging around 21 per cent. 

© 2022 Western Investor

Kelowna 12,052-sq.ft. of commercial-industrial sells for $2.6 million

William Wright Commercial
Western Investor

Mixed-use office, retail and industrial building is fully tenanted with five units on an industrial-zoned 0.45-acre site

Property type: Mixed-use commercial

Location: 2333 Hunter Road, Kelowna, B.C.

Number of units: 5

Property size: 12,052 square feet

Land size: 0.45 acres

Zoning: Industrial

List price: $2.65 million

Sale price: $2.60 million

Closing sale date: December 7, 2022

Brokerage: William Wright Commercial, Kelowna, B.C.

Brokers: Jeff Hancock and Shelby Kostyshen

© 2022 Western Investor

Investors find commercial condos tough to cash flow

Frank O’ Brien
Western Investor

High per-square-foot costs and interest rate hikes cool demand for Metro Vancouver industrial strata, despite soaring leases and near-zero vacancies

 The 185,000-square-foot IntraUrban Crossroads, Surrey’s second-largest industrial strata space, was primarily bought by owner-users,| PC Urban Properties

Real estate investor interest in strata commercial projects has cooled as high per-square-foot prices and rising interest rates make rentals a questionable cash flow, commercial agents say.

Strata industrial is a relatively new concept wherein the space is sold, like a residential condo, rather than leased.

Such developments have come to dominate industrial development in Metro Vancouver, where 7.7 million square feet of space is under construction and the industrial vacancy rate is around 0.2 per cent, lowest of any major city in North America.

Three of the five largest industrial developments underway in the Metro region are strata projects. 

The latest is by PC Urban Properties and Nicola Wealth, which partnered to acquire 2660 Barnet Highway in Coquitlam in September for $24 million. The 3.48-acre site will be used to develop 100,000 square feet of small-bay industrial strata product for owner users and investors.  

The strata space is touted to allow businesses to acquire workspace and enjoy the benefits of real estate appreciation combined with a set monthly mortgage cost, rather than being exposed to rising lease rates. 

The average industrial lease rate in Metro Vancouver increased to a record high of $20.44 per square foot in the third quarter 2022, compared to $17 per square foot at the start of the year, and up from around $13 per square foot a year earlier, according to Colliers.

Many speculative developers, therefore, also bank on investors purchasing a portion of the strata space and renting it out to owner-occupiers.

That concept is now nearly dead, agents say.

“It is a challenge for strata investors today,” said Kelvin Luk, principal of Luk Real Estate Group with Madonald Commercial  in Vancouver.

Purchasers, including the investors who represent about a third of the market, are dealing with a different environment, particularly as interest rates continue rising. CBRE reported that average strata sale prices hit $640 a square foot in the second quarter, up 11 per cent since March – an increase greater than anywhere else in the country. In parts of Vancouver, strata industrial-office space is selling for north of $800 per square foot.

Even with the record-high leases, investors face problems generating positive cash flow by leasing out strata space, Luk said, adding the cost of financing adds a recent, steep barrier.

On October 26, the Bank of Canada raised its overnight lending rate to 3.75 per cent in the sixth rate increase this year.

While owner-occupiers may qualify for 80 per cent to 100 per cent financing of their strata commercial space, an investor would be required to put down 30 per cent to 50 per cent and would also be subject to higher lending rates, Luk explained.

Luk said high land costs have persuaded industrial developers to build the multi-storey projects, but “it is harder to sell or lease space above the ground floor.”

William Maunsell, an associate vice-president at Luk Real Estate Group, suggested several planned commercial strata projects will be scaled back or delayed as investor demand wanes, though he could not point to specific locations.

Maunsell said an outlier is strata medical office space, which he said remains a top seller to both owner-occupiers and investors, especially in Vancouver.

© 2022 Western Investor

High-end Okanagan shrugs off the real estate blues

Frank O’ Brien
Western Investor

Multimillion-dollar property and land sales continue across the Central and North Okanagan this autumn, despite economic angst

Edmonton-based Westrich Pacific plans a luxury 1,000-home mixed development on a 13-acre waterfront site it bought in West Kelowna. | Westrich Pacific

Sales of prime waterfront, residential land and luxury properties in B.C.’s Okanagan continue, despite the angst that has stunted much of British Columbia’s real estate market in the second half of 2022.

Jane Hoffman of Jane Hoffman Realty, Coldwell Banker, said her team transacted $62.5 million worth of listings in the eight weeks ending October 21, with pricing from $2.7 million to $9.75 million.

At Predator Ridge, a golf course community between Kelowna and Vernon, 30 of 38 building lots in the new Outlook subdivision quickly sold at prices ranging from $640,000 to more than $1.2 million, according to Jeff Hudson of HM Commercial in Kelowna.

And a listing for a 13.1-acre lakefront site in West Kelowna, under a 125-year pre-paid lease by Westbank First Nation, sold in October to Edmonton-based developer Westrich Pacific in a deal brokered by HM Commercial. The sale price was not released, but sources estimate it was north of $25 million. Westrich Pacific plans a luxury 1,000-home development with a retail village, under a conditional development permit inked September 10.

“Although there is short-term uncertainty in the market, there are still very big projects like this happening throughout the Okanagan,” Hudson said.

Other notable deals transacted in the third quarter of this year include a 0.92-acre building site at Big White ski hill, Kelowna that sold for $2.45 million, and a 4.5-acre multi-family development site in West Kelowna, which sold for $5.16 million, according to HM Commercial’s quarterly report released October 26.

As well,  Sutton Place Hotels, a luxury hotel brand owned and operated by B.C.-based Northland Properties Corporation, announced September 9 that it is building a new luxury hotel at Kelowna International Airport, with construction to start in 2023.

© 2022 Western Investor

Mission, B.C., 0.23-acre industrial site sells for $1 million

CDW Commercial
Western Investor

Site near the Fraser River has two industrial buildings, with residential rental potential on second floors.

Property type: Industrial

Location: 7034 Bridge Street, Mission, B.C.

Land size: 9,927 square feet

Land size in acres: 0.23 acres

Buildings: 2

Building size: 5,224 square feet (total)

Zoning: ING (Industrial general)

Sale price: $1.09 million

Brokerage: Re/Max Little Oak Realty (Commercial) CDW & Associates Commercial Real Estate, Fort Langley, B.C.

Brokers: Katherine Johnson, Marty Peters and Charles Wiebe

© 2022 Western Investor

Another 1,000 jobs coming to Calgary

Frank O’Brien
Western Investor