Foreign buyers find purchase in region’s industrial strength

High demand in the market means local buyers now face competition from beyond Canada

Industrial interest

Demand for industrial space in Metro Vancouver continues to outstrip supply, leaving investors and tenants alike scrambling for opportunities. The strength of the market means local buyers now face competition from beyond Canada.

Just how strong is the market? Avison Young recently described appetite for industrial space in Burnaby and Coquitlam last year as “insatiable.” Demand, as well as supply constraints, position 2019 to be a year of disappointment for those seeking to buy or lease space.

“While Burnaby and Coquitlam remain highly sought after by owner-occupiers, tenants and investors, sales and leasing activity will likely slow in 2019 due to a lack of such opportunities in those markets,” the brokerage reported. “With very limited new supply in the development pipeline and ongoing strong demand, vacancy in both markets – already at or near record lows – is expected to remain extraordinarily tight for the next 18 months.”

The situation is forcing many tenants or owner-occupiers looking to expand to seek cheaper space elsewhere, such as Pitt Meadows, to defer expansion or to close altogether.

Moreover, investors who buy now likely won’t see an immediate return on their investment, Avison Young says.

However, rising rates mean good cash flow for established owners, and that’s where foreign buyers are taking note. Net lease rates in Burnaby and Coquitlam are running between $7.95 and $18 a square foot, Avison Young reports.

“We’re seeing offshore money, for the first time, coming into industrial because they understand and can see the quality of the investment,” Todd Yuen, president, industrial, at Beedie, told the Urban Development Institute last month. “The rents have finally caught up to the point where we can start to push the development cycle a little bit.”

Unfortunately, a shortage of development opportunities means push may come to shove, or shutdown.

Colliers International reports nearly 4.9 million square feet of industrial space was under construction across Metro Vancouver at the end of 2018, with 45 per cent of the activity being in Surrey, Richmond and Delta. But of the 15 submarkets surveyed, five have no activity whatsoever. Underscoring the dearth is the fact that the situation is unchanged from six months earlier. The five quiet markets are Coquitlam, New Westminster, North Vancouver, Port Moody and Tsawwassen First Nation.

Foreign involvement

The latest property transfer data set from the province indicates that the proportion of foreign involvement in B.C. real estate deals dropped in 2018.

Foreign buyers accounted for just 2.4 per cent of all residential transactions last year, down from 3 per cent in 2017. Similarly, foreign involvement in commercial transactions fell to 5.9 per cent from 6.3 per cent.

But bearing out rising interest in commercial deals, the count of commercial transactions with foreign involvement rose from 114 in 2017 to 355 last year.

Who pays cash?

Canada is among the top countries in the world when it comes to cashless transactions. The latest report from Payments Canada, released in December, noted that cash was used for 29.8 per cent of the 21.9 billion payments consumers and businesses made in 2017. However, those transactions accounted for just 1.2 per cent of the value of those payments. The average cash payment in 2017 was just $17.53.

These facts make one wonder just how many transactions will be affected by Vancouver council’s recent move to ban cash for payments in excess of $10,000. The city acknowledged when it announced the new policy that just 0.6 per cent of the $2 billion it receives each year arrives as cold, hard cash.

The ban was designed to fight money laundering, in which real estate has long been implicated through tales of cash-filled suitcases from Asia and under-the-table payments to contractors. Now, we can add property tax payments to the list.

City staff report that of the 19 cash payments in excess of $10,000 last year, 16 were for property taxes.


Peter Mitham Business in Vancouver | February 14, 2019 | westerninvestors.com

  

Housing-related ‘brain drain’ from Metro Vancouver is a myth, says analyst

Concerns that the high cost of housing is driving Metro Vancouver’s young professionals into a mass exodus to find more affordable homes in less expensive regions are unfounded, according to one data analyst.

Jens von Bergmann, founder of Vancouver-based analytics firm MountainMath, crunched census data between 2006 and 2016 and found more young professionals – defined as those with at least a bachelor’s degree – arriving in the Vancouver Census Metroplitan Area (CMA) than leaving it.

Von Bergmann broke down the numbers of people with bachelor’s degrees and those without in each of the 2006, 2011 and 2016 census reports, within three age groups. He found that in the Vancouver CMA, all but one of those cohorts increased in number during that time – and population growth was highest among young people with bachelor’s degrees (see chart below). The only cohort to slightly decrease in population in the Vancouver CMA during that decade was those aged 50-59 without bachelor’s degrees.

“Young people with university degrees continued to arrive in greater numbers than they left well through their thirties and on into their forties,” wrote von Bergmann in his blog.

von-bergmann-mountainmath-net-migration-education-level.jpg

Census data on net migration in four Canadian metropolitan areas by education level, between 2006 and 2016. Source: doodles.mountainmath.ca

Von Bergmann said there is no need to worry about a ‘brain drain’ in growing cities like Vancouver, and we don’t need to worry about professionals leaving.

“Due to better pay, professionals are better equipped to deal with a tight housing market than most others,” he said.

If we want to prevent more displacement, he said, we should focus on those actually at risk: the poor and working class.

“More housing can lead to a more equitable city with room for people who aren’t well-paid professionals or independently wealthy,” he said.

“That suggests both building more and promoting a lot more non-market and rental housing.”

Glacier Media Real Estate

By Joannah Connolly, Glacier Media Real Estate | February 2019,biv.com  

Proposed 54-storey ‘Granville Gateway’ tower under review

Urban Design Panel meets next week to assess proposed 601 Beach Crescent development at the north end of Granville Street Bridge

The Urban Design Panel meets February 20 to assess Pinnacle International’s proposal to build a 54-storey mixed-use tower at 601 Beach Crescent at the north end of Granville Street Bridge.

Designed by GBL Architects, the building, which is being considered under the City of Vancouver’s Higher Building Policy, includes 303 market residential units and 152 social housing units.

It would sit opposite Westbank’s 49-storey Vancouver House “twisty” tower, which is under construction, to create what’s been called the “Granville Gateway” leading in and out of downtown Vancouver.

City council adopted the higher building policy — a set of guidelines to be used in conjunction with other policies for reviewing buildings seeking significant increases over existing height limits — in 1997.

The policy has been amended several times, including in 2011 when the “Granville Gateway” sites were added after a public consultation process.

Pinnacle’s rezoning application proposes a height increase on the site from 17 to 54 storeys under this policy.

At its meeting next Wednesday, the Urban Design Panel, which advises city staff and council on rezoning and development proposals, will review the project based on the Higher Building Policy, as well as the Beach Neighbourhood CD-1 Guidelines, the False Creek North Official Development Plan, the city’s green building policy for rezonings and view cone protection guidelines.

All proposals that meet the criteria for higher buildings undergo an “enhanced review” by the UDP, which is supplemented by the addition of two local architects and two international design experts, according to the City of Vancouver.

The two additional local architects are Karen Marler of HCMA Architecture + Design and Peter Cardew of Peter Cardew Architects. The two international architects are Laura Jimenez of Adrian Smith + Gordon Gil Architecture and Robin Williams of Morphosis Architects.

The panel’s purpose is to provide urban design commentary and recommendations for city staff and the applicant to consider for further development of the proposed design. 

After the UDP review, next steps for the rezoning application include interdepartmental reviews by city staff. Council will then consider it at an upcoming public hearing. A date will be set in the future. The public can also submit comments to the city about the rezoning application.

The project has already attracted opposition. Members of a group called Vancouver Beach District showed up at an open house last November to raise objections about rezoning the site from 17 to 54 storeys. They cited concerns including it being too high, the lack of existing infrastructure in the neighbourhood to handle increased density, the potential for traffic problems and a lack of consultation.

Copyright © Western Investor | Naoibh O’Connor Vancouver Courier | February 14, 2019

Toronto is a top commercial investment destination right now

Intensified demand brought about by an influx of tech companies has pushed Toronto’s office market towards becoming one of Canada’s premier investment destinations, according to a CBRE Group report.

The vacancy rate of the office sector fell to 2.7% during the fourth quarter of 2018, leading to commercial rental rates reaching an average of $35.37 per square foot.

This far outstripped Montreal’s figures, which posted a median rental rate of $22.76/sf on a 9.4% vacancy rate during the same quarter. And Vancouver, while having a higher average at $37.20/sf, did not command the level of Toronto’s demand, with a 3.8% vacancy.

Even intensified development offered only the most minimal of respites for the overheated market. As of the end of 2018, approximately 14.2 million square feet of new commercial space was under construction nationwide, with most of this situated in Toronto, Vancouver, and Montreal.

This was the strongest development activity since the first quarter of 2016, the CBRE noted.

CBRE added that despite the 7.3 million sf of space still under development in Toronto, “chronic shortage” will continue to characterize the market for the foreseeable future.

For perspective, this greatly exceeds Vancouver’s 2.86 million sf and Montreal’s 954,510 sf. This also continues the running theme of demand consistently outpacing supply nationwide, as the overall Canadian office vacancy rate fell to 11.9% in Q4 2018.

Rising construction costs herald a reckoning for small developers

Cost pressures

A year ago, people wondered how high prices could soar. Presale condo pricing was pushing the envelope across the region, and Bosa had recently sold office space at 320 Granville Street for slightly more than $2,100 a square foot.

Today, buyers are more cautious and construction cost increases mean developers have limited room to manoeuvre. While the average increase is less than 10 per cent, according to cost consultants at Altus Group, several trades are able to demand many times that because schedules are tight. It’s their way of prioritizing whose work gets done.

This concerns Neil Chrystal, president of Polygon Homes Ltd. and a panellist at the recent Urban Development Institute (UDI) forecast luncheon.

“How does the bottom line look after you factor in much more expensive construction costs? Because if the numbers don’t make sense, we won’t move forward,” Chrystal said. “We started doing less last year, and we’re still trying to figure out what we’re going to do this year.”

With some projects, it might be better to wait, so that the final cost to the consumer allows developers to get the requisite number of pre-sales to trigger financing, which banks are less inclined to give these days.

“We all need to go out and get pre-sales to get our financing, and financing is going to be tougher,” he said. “The big banks say, ‘We’re only going to be financing our Tier 1 developers.’ They’ve only got so much money to put out there.”

This could cause problems for smaller developers that aren’t well capitalized and find themselves pinched by rising costs, lower sales and higher interest rates on financing they do secure.

“There’s going to be a shakeout a little bit this year with the smaller guys,” he said. “It’s going to be trouble.”

Time to think

Your intrepid columnist is filing this from Sacramento, where he’s on the lookout for Anthem Properties Group CEO Eric Carlson. During a lively exchange at the UDI forecast luncheon, Carlson announced he was heading there promptly.

Why?

It’s not just the company’s recent purchase of the Cathedral Square site in Sacramento’s downtown for mixed-use development. Rather, it’s the city’s desire to see projects built – a desire lacking over at the District of North Vancouver.

The district regularly failed to meet its long-standing goal of building 500 new homes a year. Indeed, it recently asked for a revamp of a six-storey project for seniors in the Edgemont Village neighbourhood.

“Thoughtful people, architects and planning staff” had put in two years of work on the project, he said.

“Is two years not enough?… Is that not what they’re good at? Shame on you,” he exclaimed, to thunderous applause from an audience too familiar with cumbersome civic approvals processes.

Under the circumstances, few in the audience expect the BC NDP to build 114,000 affordable new homes in 10 years. Most pegged this year’s tally at between 1,000 and 2,000 units.

Cost comparisons

Just how tight is the Vancouver office market?

According to Colliers International vice-president Matt Carlson, with the availability of downtown office space averaging 2.9 per cent, the space being built today to address demand is pre-leasing for less than existing space.

“On a net effective basis, the spot price is higher for existing buildings – A and triple-A existing class – than it is for new buildings that are coming out of the ground,” Carlson said. “People that are having to move today in this environment, if they need space, they need space, and they’re prepared to pay whatever the market will bear.”

The demand has pushed gross asking rents to nearly $68.52 per square foot for triple-A space, while A-class space is commanding $58.72. Together, both are setting the pace for the overall rate. According to Colliers’ year-end office market report, the average gross asking rate downtown for all classes of office space is $59.84 per square foot while the average net asking rent is $32.45 per square foot.


Peter Mitham Business in Vancouver | February 6, 2019 | westerninvestor.com

Developer eyes two condo buildings on New Westminster Royal Towers site

A preliminary development application proposes a mixed-use residential, retail and child-care project

The Royal Towers Hotel may have been a happening place in its heyday, but a new plan is in play for the prominent site.

Built in 1961 as a hotel, the seven-storey building at the corner of Sixth Street and Royal Avenue is currently home to 135 residential units and a private liquor store. In December, the city’s land use and planning committee received a preliminary application from Domus, which is proposing to build a mixed-use residential, retail and child-care development on the property at 140 Sixth St.

“It’s a very large site, centrally located in the city, in very close proximity to downtown New Westminster,” said Mayor Jonathan Cote. “We do think the time has come for that site to be looked at, but we want to make sure we are getting the right development application that fits that site where it sits and can contribute to the city.”

According to a staff report on the preliminary application, the proponent is proposing to build 36-storey and 40-storey towers, which would be connected by a six-storey podium. Along with residential units, the project would include space for a non-profit child care and 1,340 square metres (14,426 square feet) of commercial space.

The preliminary plan includes commercial space fronting on to Royal Avenue and Sixth Street, including a liquor store facing Sixth Street and a restaurant at the corner of Sixth and Royal. It also includes a corner plaza at Sixth and Royal and a pedestrian mews that provides a public pedestrian connection between Sixth and Seventh streets.

The overall permitted density on the site is 5.2 floor space ratio (a 7.02 FSR is proposed) and a residential density of 3.0 FSR is permitted (a 6.84 FSR is proposed). In exchange for increased density, the applicant is proposing to provide 40 non-market units, space for a child care, 106 rental units (which is 80 per cent of those currently offered on the site) and a to-be-determined voluntary amenity contribution.

Cote, one of three council members on the land use and planning committee, told the Record the project has a long way to go before it reaches the point of becoming “a real application” to be considered by city council. He said the proposal received a “mixed reception” at the land use and planning committee meeting, where concerns were raised about the amount of affordable housing being proposed and the height of the towers.

“There was a recognition that it is a site that is contemplated to be highrise, but the height was being pushed beyond even the local context of the area,” he said. “The second major issue was the affordable housing component. There was definitely appreciation and support of there being an affordable housing component to the project, but there was a feeling the percentage of units was not high enough in terms of what the city hoped to achieve on that site.”

The 40 units of non-market housing being proposed represents 4.3 per cent of the total number of units proposed for the project. A staff report states that 71 to 84 affordable housing units would be required to meet a range of 7.5 and 10 per cent.

“The city is going through some work on developing some inclusionary zoning policy, and we wanted that development to be more in line with our thinking of that policy, which will likely put us closer to 10 per cent of the units being affordable housing units,” Cote said.

In addition to addressing the committee’s concerns about the heights of the two towers and the number of nonmarket housing units to be provided in the development, the applicant will need to address a variety of issues raised in the staff report before the project will be considered by the committee and council. If the pre-application inquiry proceeds to a formal application to the City of New Westminster, the proponent would need to submit rezoning and development permit applications to the city.

“I definitely think it is a site that will be redeveloped,” Cote said. “The Royal Towers has a long history in the community, but the building isn’t what it used to be. From the city’s perspective, the residential component in that building right now has moved to more of a rental and short-term rental component, and that’s one reason why the city is very eager to make sure that an affordability component is a big part of the new project and that any tenant relocation, when that discussion comes, is certainly a big part of that discussion.”


Theresa McManus New West Record | January 23, 2019 | westerninvestor.com

Technology disrupts commercial real estate

According to a report from Altus Group, commercial real estate firms are beginning to adopt property technology platforms in ways that promise to change the industry in the near future.

The Altus Group CRE Innovation Report surveyed 400 commercial real estate executives at firms with assets under management totalling over $2 trillion, 41% of whom are already using automaton for benchmarking and performance analysis. Thirty-nine percent are using automation for scenario and sensitivity analysis and 36% are using it for budgeting and forecasting.

“Sixty-one percent of CRE [commercial real estate] executives around North America use some online lending platform, and 23% of them are using them in a pretty significant way,” said Ross Litkenhous, global head of business development for Altus Group.

“From a crowdfunding perspective, you’re giving a broad, wide array of investors the opportunity to invest in a piece of real estate, whereas in traditional commercial real estate, you have folks that syndicate money or are tied in with a high net worth individual. Everybody gets a percentage of a deal. From crowdfunding you’re going out to the masses and asking people to invest in a deal through some sort of online platform, which is not the way real estate has been traditionally done. It’s taking evolutionary leap.”

Some of the online lending firms are Lending Tree, Blend, and RealAtom; a couple of the online investment and crowdfunding companies are Cadre and Fundrise; and an online exchange company is Ten-X.

Litkenhous talks about the bell curve, in which innovators lead the way and are followed by early adopters; then the early majority, who are followed by the late majority; and finally they are tracked by laggards, who tend to be conservative in outlook and execution.

“My opinion is we’re between early adopters and the early majority phase,” he said. “What that means is it’s gotten enough mainstream coverage and enough folks who have trusted the technology enough to do deals, and they have seen the value. Now larger companies and larger players are saying it’s been out long enough that it’s time to adopt. In our survey, we saw 53% of our respondents said they were directly investing in one type of PropTech firm.”

The report further stated that the combination of new market entrants and technologies, as well as changing demographics, have created disruptive models within the commercial real estate industry. Moreover, many firms within the industry are investing heavily in property technology to the point that they will influence the industry’s future direction.

“This means significant opportunity for firms who rapidly embrace innovation and PropTech to streamline their systems and processes to reduce complexity. Staying on top of the disintermediating drivers will help ensure CRE executives are well-positioned to leverage the latest available technologies to their advantage,” read the report.

“The combination of new market entrants, new technologies and changing demographics have created disruptive models within CRE. This means significant opportunity for firms who rapidly embrace innovation and PropTech to streamline their systems and processes to reduce complexity. Staying on top of the disintermediating drivers will help ensure CRE executives are well-positioned to leverage the latest available technologies to their advantage.”

by Neil Sharma | 23 Jan 2019  | Canadianrealestatemagazine.ca

Future Broadway Corridor shopping hub comes into focus

Cambie at West Broadway eyed for long-term redevelopment plans

Retailers are looking at 2019 as a year when a strong B.C. economy will keep sales growth robust, even as e--commerce continues to chip away at bricks-and-mortar store sales.

The future of retail space in both traditional and emerging spaces near Vancouver transit stations will likely gain clarity, while established prime shopping strips in the city struggle to remain relevant.

And while some of those strips have endured plenty of empty storefronts, there will be a collection of new retailers staking territory and vying for success.

One emerging retail area in Vancouver that is likely to be a high-traffic hub in a decade is unlikely to be on many people’s radar in 2019, as its transformation is largely in a conceptual stage.

Work crews, however, are gutting longtime retail spaces on the northwest corner of West Broadway at Cambie Street, where a second-floor Original Joe’s restaurant has long had prominent signage.  A ground-floor Starbucks and a string of other businesses stretching west all vacated space months ago to make way for a mixed-use building that will have five storeys of office space above two storeys of retail.

Pacific Crown Management Co. Ltd. gained a development permit earlier this year for the Yorkson Investment Co. Ltd.-owned site at 510 West Broadway, which is across the street from the Broadway-City Hall Canada Line station.

The project is significant because it is the first of many projects that are in various stages of conception. Those projects are expected to transform the area into a hub because it will in future be home to the intersection of two transit lines. Work on the Millennium Line Broadway Extension is expected to start in 2020 and complete in 2025.

B.C.’s Ministry of Transportation told Business in Vancouver that work to determine exact station locations is underway, and the ministry is now initiating discussions with property owners.

Rumours have circulated in retail circles about the possibility of a shopping centre being built under city hall and its lawns, which are south of the Canada Line station. The City of Vancouver is allotting $2 million for “master planning for the city hall precinct” in its 2019 budget.

Other potential projects in the neighourhood could be on sites such as 310 West Broadway, about a block east, where there is now a No Frills grocery store, said Retail Insider Media owner Craig Patterson.

“It’s safe to say that there are multiple proposals for development based on the fact that transit is being expanded in that area,” Patterson said.

The city’s current shopping hub servicing two transit lines is at the corner of Granville and West Georgia streets, where the landmark Hudson’s Bay Co. (HBC) building has been subject to much speculation over its future.

HBC and joint venture partner RioCan REIT put the store’s real estate on the block in 2017 and were rumoured to have been close to a sale in 2018. That deal fell through, however, prompting a reassessment of the site’s future and possibly the severing of an agreement between HBC and workspace company WeWork.

WeWork had been slated to lease the top two floors so HBC could consolidate in the rest of the building.

“I don’t know what will happen with WeWork,” Patterson said. “That was to be the sublease agreement. They were supposed to come in. The Bay was going to move menswear into the basement. We’ll see if that happens.”

Retailers along longtime prime shopping streets such as Robson and Alberni, meanwhile, will have their work cut out for them in the new year.

Robson Street in 2018 suffered a lot of rotation and plenty of empty storefronts in prime blocks east of Bute Street.

 “I was told that some stores’ sales on Alberni Street, in the luxury area, are down,” Patterson said, adding that he has heard that the reason for the sales decline is a drop in traffic from Chinese tourists – and this was before Canada arrested high-profile Huawei CFO Meng Wanzhou.

Rumblings about boycotts of Canadian goods and anti-Canada sentiment in Chinese media may stem the flow of wealthy Chinese tourists to Vancouver in 2019, and that could hurt shopping strips such as Alberni Street, Patterson said.

Nonetheless, he expects new retailers such as Warby Parker, Vacheron Constantin, Montblanc and Cartier to open Vancouver stores and to do well.

Hermès’ future two-storey flagship store is under construction on the southwest corner of Burrard and West Georgia streets. Retail sales in B.C. in 2018 are expected to grow by less than 4 per cent, which would be less than half of the 9.6 per cent retail sales growth in the province in 2017 – the highest annual rate since 1994, and the largest increase among provinces.

B.C. has the lowest unemployment rate among provinces and the economy is strong, however, and those are positive indicators for retail sales growth in 2019.

Copyright © Western Investor  Glen Korstrom Business in Vancouver January 24, 2019