Will 2018’s big B.C. commercial real estate deals be topped this year?

Transaction volume predicted to slow as investors and lenders reassess property yields, but Bentall office portfolio deal could push dollar volume up

The sale of the Bentall office portfolio in downtown Vancouver, announced March 27, could drive commercial real estate velocity in B.C. to near or above the record level of 2018. The sale price of the four-tower landmark office complex in downtown has Vancouver has not been released but is expected to be near the $1.06 billion paid for the site three years ago.

Business in Vancouver’s Biggest Real Estate Deals of 2018 chronicles a year that rang in $6.5 billion in 202 commercial and industrial sector transactions across the province, according to commercial agency Avison Young. This was down from the unprecedented volume of $7.5 billion in 2017, when 232 properties sold.

Avison Young noted that a widening bid-ask gap was already becoming apparent in the last half of 2018 as both investors and lenders began to “recalibrate investment objectives.” 

This could be related to rising interest rates and a near collapse of Metro residential sales, since many large land deals last year hinged on the potential for lucrative, high-density residential development. “A substantial decline in the number of deals completed is forecast for the first half of 2019,” according to Avison Young's Year-End 2018 BC Real Estate Investment Review. 

The report suggest prices will remain high for prime office, retail and industrial assets, but buyers and lenders will be costing out the yields “with less emphasis on the speculative aspects” of redevelopment.

At least seven of 2018’s biggest deals were based on residential development speculation. These include:

  • U.K.-based Harlow Holdings Ltd.’s $164.7 million purchase of a one-third-acre multi-family site in Vancouver’s West End;

  • two “strata windups” in Vancouver with a total value of $324 million; and

  • the sale of a parking lot on Seymour Street in downtown Vancouver to mixed-use residential developer Reliance Properties Ltd. for $131.3 million.

Industrial transactions, which accounted for 40 per cent of 2018’s big deals, were worth almost $1.2 billion, just down from the peak of 2017.

In 2018, Metro Vancouver residential land sales hit $627 million, which would be an all-time high were it not for the spike during 2016 and 2017 when sales crested the $1.1 billon mark for the first time.

The downward shift began in 2018’s last half, as an avalanche of government policies, interest rate hikes and a subsequent 40 per cent plunge in housing sales hammered developer and consumer confidence, said Casey Weeks, senior vice-president of investment at Colliers International.

Weeks added that the mortgage stress test and other regulations have also slashed the pre-sales that condo developers depend on for financing.

He forecasts that some planned condo projects from smaller developers won’t proceed, which in turn could affect speculative sales of potential development sites this year.

The average cost for every buildable square foot for a residential development in Vancouver is now between $450 and $550. Vancouver has by far the highest combined per-buildable-square-foot costs and construction costs in Canada, according to Altus Group’s 2019 Construction Cost Guide.

Sales of all types of land, including commercial holding property and residential land assemblies, started slowing late in 2018, reported the Real Estate Board of Greater Vancouver. Tracking transactions through B.C.’s land titles, the board found that land sales in the third quarter of 2018 had fallen 34.8 per cent from the same period a year earlier and the value of total land sales had dropped by nearly 15 per cent, to $2 billion.

BIV lists the $248.7 billion transaction of an industrial portfolio by the Vancouver Fraser Port Authority as the biggest industrial deal last year.

Much of the industrial action, however, is in speculative warehouse and distribution tied to the retail sector, including the 1.1-million-square-foot Xchange business park in Abbotsford by Hungerford Group and QuadReal Property Group, developed on speculation and proposed for completion late next year.

But a “major deceleration of retail sales growth” from nine per cent in 2017 to two per cent last year is among the reasons the B.C. Real Estate Association (BCREA) cites for an expected “flattening” of commercial and industrial real estate investments in 2019.

The BCREA also points to a fourth-quarter drop in manufacturing shipments and employment as red flags for industrial real estate. The association’s much-watched Commercial Leading Indicator index saw its first drop in nine years as 2018 ended, down one point from a year earlier.

The Bentall Centre office and retail portfolio has been purchased by Hudson Pacific Properties Inc. in a joint venture with an affiliate of Blackstone Property Partners. Hudson Pacific will own 20 per cent of the joint venture and serve as the operating partner responsible for day-to-day operations and development. Blackstone will own 80 per cent and serve as the managing partner.

The 1.45-million-square-foot transaction is expected to close in the second quarter of this year. CBRE in Vancouver was the broker agent on the transaction, which is rumoured to have topped $1 billion.

Frank O'Brien Western Investor | March 27, 2019

Multi-family starts predominant in the hottest markets

In recent months, more multi-family buildings were constructed than any other housing type in Canada’s hottest markets, according to a new report by the Canada Mortgage and Housing Corporation.

“The national trend in housing starts resumed its downward trajectory in February while still remaining above historical average,” CMHC chief economist Bob Dugan said.

The Crown corporation said that despite the nationwide housing starts trend falling to 203,554 units in February 2019 (from the 207,742 units exactly a year before), multi-family complexes represented much of recent home construction activity.

“Both single-detached and multi-unit dwellings starts trended lower. Higher mortgage rates combined with still-favourable, but less stimulative economic conditions have contributed to softer demand on new home markets in urban centres.”

Vancouver, in particular, saw the predominance of multi-unit buildings in new projects. Condo starts significantly increased in the 12 months ending February 2019, accounting for 77% of the city’s new housing units last month. In contrast, single-detached starts fell by 24% annually.

Meanwhile, Toronto’s lower February numbers mainly stemmed from low condo apartment starts, although demand for the asset class is not stopping any time soon as “sales of new condominium apartment starts have been strong in 2017 and 2018 and these units will continue to break ground throughout this year at a varying pace.”

“Row and semi-detached home starts trended higher underlining their popularity among buyers looking for lower priced ground-oriented homes,” the CMHC noted

On the other hand, Montreal’s total housing starts decreased by 47% year-over-year in February, but “rental apartment construction has continued to show strong growth. The low vacancy rates, the aging of the population and the greater proportion of young households now opting for the rental market have continued to stimulate rental housing starts,” the CMHC stated.

by Ephraim Vecina | 12 Mar 2019 | www.canadianrealestatemagazine.ca

Commercial real estate remains hot commodity in Greater Victoria

Commercial real estate remains hot commodity in Greater Victoria

Victoria city hall is reflected in the glass of the mixed-use development at 1515 Douglas St. | Adrian Lam, Times Colonist

Canadian commercial investment to intensify this year

A report from Avison Young Canada Inc. earlier this month indicated that as of 2018, commercial property investment nationwide exceeded the previous high of $36 billion in the year before that to reach a new record – and this momentum is expected to last for much of 2019.

This is due to a 40-year low in unemployment rates along with sustained commercial scarcity in markets nationwide.

“We continue to feel very positive about opportunities in the real estate environment for the year ahead,” Avison Young Canada CEO Mark Rose said earlier this week, as quoted by Bloomberg.

“More capital is available to move into real estate debt and equity than at any other time. The next wave of investment is not a matter of if or when -- it’s just a matter of price.”

Office vacancy rates declined in nearly every market nationwide, bringing the overall average down to 11% by the end of 2018.

Office construction nearly doubled last year to more than 22 million square feet. A large portion of this new supply is predicted to be in the suburbs, taking into account rate hikes and extreme space constraints in downtown areas.

Industrial vacancies fell to a historic low of 2.9% near the end of 2018, with vacancy levels in Toronto (1.3%) and Vancouver (1.5%) among the lowest in the continent. Construction was also at more than 20 million sq. ft. in 2018, far outstripping 2017’s 14 million sq. ft.

by Ephraim Vecina | 23 Jan 2019 | canadianrealestatemagazine.ca

Foreign investors flocking to Vancouver's industrial segment

Amid intensified construction activity, Vancouver’s industrial real estate market is steadily magnetizing foreign investors, a trend that might pose a major challenge for the domestic buyer segment.

Numbers from Colliers International indicated that nearly 4.9 million square feet of industrial space was under development across Metro Vancouver as of the end of 2018. Almost half (45%) of this activity is in Surrey, Richmond, and Delta.

According to Avison Young, Burnaby and Coquitlam were the region’s stand-outs, with transactions involving industrial property in these locales being rapidly snapped up in a frenzy of “insatiable” demand.

“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,” Avison Young stated, as quoted by Business in Vancouver.

“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 brokerage added.

This is also expected to feed into a virtuous cycle of rising rates and strong cash flow for owners, with net lease rates in Burnaby and Coquitlam hovering between $7.95 and $18 per square foot, Avison Young reported.

“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 of the Beedie Development Group said. “The rents have finally caught up to the point where we can start to push the development cycle a little bit.”

by Ephraim Vecina19 Feb 2019  | CanadianRealestatemagazine.ca

Market rental tower going up on Robson Street

Vancouver mayor welcomes pet-friendly West End highrise, citing need for market rental buildings

To emphasize that the new highrise being built at 1500 Robson St. will be pet friendly, two dogs — Hazel and Trink — made an appearance at the Feb. 20 ground breaking. They're pictured with (left to right) Mayor Kennedy Stewart, as well as Ralf Dost, Steve Marino and Jeff Fleming from GWL Realty Advisors.

It’s unusual to see a pair of dogs — in this case Hazel and Trink — at a press conference packed with developers, real estate types and politicians. But not when you’re trying to underscore the fact a new development will be pet friendly in a city where it's notoriously difficult to find an apartment that accepts animals.

That was the case Feb. 20 at a ground breaking for a 21-storey market rental building going up at 1500 Robson St. in Vancouver’s West End.

The pooches got a front-row seat to hear speakers, including Mayor Kennedy Stewart, praise the tower, which will produce 128 rental units, a third of which (42 units) will be two- and three-bedroom family-sized apartments ranging from 753 to 978 square feet.

London Life Insurance Company is the owner of the project, which is being developed by GWL Realty Advisors and designed by IBI Group

The tower is being built on Robson at Nicola Street and is expected to be completed in 2021. | Rendering IBI Group

The tower is being built on Robson at Nicola Street and is expected to be completed in 2021. | Rendering IBI Group

It’s one of the first rental towers to be built along Robson in decades, “in a city that’s in need of rental housing and in a neighbourhood of luxury condominiums,” according to GWL Realty, and the first rental project on Robson to be approved under the city’s West End Community Plan, which was adopted in 2014.

Ralf Dost, president of GWL Realty Advisors’ real estate portfolio, said it’s important to create more purpose-built rental apartments given Vancouver’s tight vacancy rate and the fact much of the existing stock is dated and in need of upgrades.

“We also know how challenging it is to make financial sense of multi-residential developments, especially in this West End neighbourhood, so all of these factors make the launch of this project today that much more gratifying,” he said.

Stewart agreed that increasing the supply of secured market rental apartments “is more important than ever” when more than 50 per cent of residents are renters and vacancy rates are at an all-time low.

“It’s the kind of ground-breaking we all like to come to because it is helping us with our key problem of [increasing] market rentals. We need all kinds of rentals in the city — we need affordable rentals, but market rentals are also a key part of fixing our supply problem,” he said, while adding that residents have also been pushing for the construction of units big enough for families.

“Increasing the supply as well as diversity of rental housing in our city will benefit all Vancouverites, especially young families. I used to rent right across the street so I know how vibrant this neighbourhood is, and bringing 128 more families in here is just going to really help the local merchants.”

The highrise, located at the corner of Robson and Nicola streets, is expected to be completed in 2021. It will feature “substantial” bicycle storage and maintenance facilities, as well as indoor and outdoor amenities, including fitness, yoga and lounge rooms, a rooftop patio and a common area for tenants on the penthouse floor.

It’s replacing a low-rise commercial building that used to face Robson, which featured a few residential units, as well as a residential building behind it that was mostly rented to international students. The 12 tenants who lived in the two buildings were relocated elsewhere with some assistance. GWL Realty Advisors provided tenants with the equivalent of two or more months’ rent based on length of tenancy, and support with moving expenses.

It’s too early to say what rents will be in the new building, but they will be at market rates.

The average rent for a bachelor suite in the West End was $1,254 in 2018, according to CMHC data, while a one-bedroom was $1,566, a two-bedroom was $2,330 and a three-bedroom was $3,368 — tough rates for the average Vancouverite to afford.

Stewart told the Courier the city is focused on ensuring both market and affordable rental units are created.

“We need rental for all income levels. I’m a renter. My wife and I are renters, and we can afford to live in market rental housing, and that’s what we live in. There’s lots of employment in this city that’s coming in where you have folks that have a higher income level that need this kind of housing too,” he said. “[While] our focus is going to be on making sure we maximize the number of the non-market housing units that we have built, we also have to encourage this kind of build... That’s why I’m here at this announcement today. [It's] because this kind of housing is also needed.”

When asked what he would say to West End residents who’ve complained the community plan bumped up land values so high that it’s pushing people out of the neighbourhood due to redevelopment, Kennedy said: “The West End area plan is full of protections for folks living there now and into the future, so we just have to make sure we get the balance right. It is these developers and these construction companies that are building all the housing in the city. We are living in a market economy. However, we have to do everything we can to incentivise non-market housing development and get the federal and provincial governments back into the housing game so they can help us provide much more affordable units. But the focus is on rentals of all levels here at the city.”


The 21-storey tower at 1500 Robson St. will feature 128 market rental units. Rendering IBI Group

The 21-storey tower at 1500 Robson St. will feature 128 market rental units. Rendering IBI Group

Naoibh O’Connor Vancouver CourierFebruary 20, 2019 | westerninvestor.com