Lower Mainland is primed for commercial real estate
If a city planner were to design an environment for commercial property to thrive, Metro Vancouver would be a perfect fit. With a population of around two million major donors, surrounded by mountains, oceans, the USA
If a city planner were to design an environment for commercial property to thrive, Metro Vancouver would be a perfect fit.
With a population of around two million major donors hemmed in by mountains, oceans, the US border, and decades of progressive policies that have frozen thousands of acres out of the market and blocked development necessary, there is no better place to be make money with real estate.
And the data shows it.
Metro Vancouver has the lowest commercial vacancy rates in North America and the highest lease and shift costs in the country. The industrial land base has shrunk to zero, driving land prices into the stratosphere.
In the multi-family sector, where housing construction is low, demand and rents are highest in Canada. Existing apartment building sales hit a record $ 1.6 billion in the first half of this year.
New condos, meanwhile, are pre-selling for $ 2,000 to $ 3,000 per square foot in the new Vancouver Towers in Oakridge and downtown.
Despite the pandemic, confidence in downtown offices is so strong that developers are building giant towers with no signing up of a single tenant, and Strata’s largest office listing sold out for more than $ 2,000 per square foot two years ago.
Pandemic retail trade was fueled by Metro consumer spending, which is growing faster than anywhere else in Canada. Even in Downtown Eastside, retail locations sell for the equivalent of $ 10 million per acre and retail layers sell for up to $ 800 per square foot. When the province bought skid row hotels in the area this spring, it paid as much as $ 327,000 per door.
While the ability to capitalize on a proprietary market seems legendary, Metro Vancouver real estate developers need to be smart to make it all work.
Industry
In Metro Vancouver, developed industrial land has practically disappeared. Developers are now looking east in areas like Chilliwack and Abbotsford, even Mission, raw land. With 150,000 acres locked in the 40-year-old Agricultural Land Reserve, industrial developers and owner-occupiers are paying tens of millions per acre for fallow land and turning to questionable sites to build.
That year investor Veramax Holdings paid $ 44 million for 2.5-acre industrial property in North Vancouver and biotech company AbCellera paid $ 38 million for two acres of industrial land in East Vancouver.
Beedie, BC’s largest industrial developer, has been fighting for six years to turn 163 acres of delta peat bog into an industrial park, a plan that has sparked protests from environmentalists and huge infrastructure costs.
In Richmond, Montrose Property Holdings is converting a 170 acre landfill into a $ 300 million industrial park. The resulting Richmond Industrial Center will contain up to 14 buildings ranging from 100,000 to 500,000 square feet when completed.
The payout could be worth it. The second quarter of 2021 marks the fourth consecutive quarter that there are no industrial vacancies in the 100,000-square-foot segment in Metro Vancouver, with the largest vacancy rate being 47,495 square feet, according to Colliers.
Industrial space now rents for an average of $ 14.88 per square foot, 13.7% more than a year ago and the highest in Canada. Suburban industrial space sells for an average of $ 488 per square foot, but that price can more than double in Vancouver or on the North Shore.
office
There is some debate about how many workers will be returning to the offices in September and the vacancy rate is rising, but downtown developers are dizzyingly optimistic about the future.
Downtown Vancouver has 3.3 million square feet of office space under construction, including three towers slated to open this year through 2024 that have no tenants. A 215,000 square meter, 25-story office tower due to open this fall has only signed one tenant, who only takes up 27,000 square meters.
Still, according to Avison Young, 61% of all new office rental space currently under construction until the end of 2023 is pre-let.
In its office report for mid-2021, the agency summarized the core confidence.
“Despite a significant increase in vacancies, the overall market has developed quite well as a result of the pandemic, with very few tenant defaults or rental contract cancellations or developers giving up development projects,” the report says. “An increase in new supply can even bring short-term benefits to the market and stimulate rental activity and accelerate recovery.”
retail trade
Metro Vancouver saw a multimillion dollar shopping spree this year from investors purchasing retail properties before the province began lifting restrictions on store openings on July 1. But for many retailers, traffic had already returned, according to a study by Cushman & Wakefield.
“Google data shows that at the end of June Metro Vancouver was only 3% below normal traffic for destinations like restaurants and cafes [and] Shopping malls, ”the agency reported on July 28th.
The Marketbeat report also found that at least 10 notable brands, including Athleta, Dollarama (TSX: DOL), Herschel Supply Co., Lucid Motors (Nasdaq: LCID), Nike (NYSE: NKE), and Peloton (Nasdaq: PTON) , had all retail stores expanded or opened in Metro Vancouver while restrictions still existed.
Metro Vancouver retail sales in May were $ 3.7 billion, up 34.5% from the same month last year. This is the largest year-on-year increase of any city in Canada, according to Statistics Canada.
Stationary private investors have been pushing into the Metro Vancouver market for months.
On May 12, the 42,000-square-foot Nordel Center mall in Delta was sold for $ 21.3 million, nearly $ 3 million more than BC Assessment’s value, reported the Fraser Elliott Group, which brokered the deal.
Other major sales in the first half of this year included the 81,000-square-foot Lougheed Super Center in Coquitlam, which was acquired in a $ 42 million stock sale; and a composition of three retail properties on Victoria Drive on East 49th in Vancouver, totaling 45,257 square feet, that sold for $ 42.5 million.
In the second quarter, Skyline Real Estate Investment Trust paid $ 31.4 million for a 71,800 square foot mall in Abbotsford; and a private investor bought 34,781 square feet of Rodeo Square in Surrey for $ 23.3 million.
Based on the listings from Western Investor Done Deals, there has also been an increasing number of retail properties and retail sales in retail stores across the city of Vancouver.
“The economic recovery in Metro Vancouver is picking up and can be expected to pick up significantly by the second half of 2021,” concluded the Cushman & Wakefield Marketbeat report.