At Marcus & Millichap Canada, we are continuing to shore up our presence and traction in key Canadian commercial real estate markets across the country. One of the most dynamic is the pivotal Vancouver market, which has experienced significant growth and investor interest in recent years. Rene Palsenbarg, Marcus & Millichap’s Western Canadian Regional Manager based out of our Vancouver office, is “cautiously optimistic” about the prospects for the Vancouver commercial real estate market for the remainder of 2019.
Rene is a seasoned industry veteran, with more than 30 years of senior management and consulting experience in real estate development, corporate finance, business administration, facilities management and organizational effectiveness. He is predicting a buoyant market in Vancouver for all asset classes, which are pretty healthy, although there is a downtick in the number of transactions and supply is limited, but prices are good. Industrial and office assets show a great deal of promise is 2019 with high demand and limited availability. However, retail sales appear to be in for a slight downturn and the multi-residential sector is facing headwinds, due in part to the economic and political landscape in B.C. and Vancouver.
An increase in new industrial space, to the tune of 1.5 million square feet, came onto the Metro Vancouver market in the 3rd quarter of 2018. Although most of this supply (1.4 million square feet) was either sold or leased immediately, the slight increase in supply did raise industrial vacancy rates for the first time in two years, to 1.46 per cent, which is still the second lowest in Canada and among the lowest in North America. Tight supply and low vacancies are fuelling huge increases in the going rates for prime industrial assets:
Vancouver industrial and logistics lease rates increased by 29.1% in 2018 representing the largest increase in the world. With very low vacancy, growing demand, and escalating land prices, developers are looking for innovative alternatives in order to provide much needed product into this very tight market. – Vancouver Real Estate Forum 2019
This level of activity is fine for larger businesses who see the increases as simply a cost of doing business in a hot market, but smaller industrial players will feel the pinch of tight supply, high demand and the geographical constraints of the region; where mountains, rivers and the Pacific Ocean impose some hard limits as to how much new supply can be developed within Metro Vancouver.
Despite a flurry of new construction, demand for office properties in downtown Vancouver continues to outpace supply, pushing up prices and dropping vacancy rates. From startups to Fortune 500 companies like Amazon and Facebook, and innovators like Kabam, many businesses are keen to establish or grow their office presence in Metro Vancouver, continually adding well-paying jobs and driving the demand for office space:
Average employment in the office sector was up by 2,200 jobs from the third to the fourth quarter  with gains concentrated in the professional, scientific and technical services industries. – British Columbia Real Estate Association
According to the British Columbia Real Estate Association, retail sales growth was 2 per cent for 2018, but this is down from a very strong 9 per cent in 2017, reflecting a major deceleration in growth. However, there are many exciting new projects in the pipeline indicating that the mid-range outlook for the sector remains bullish.
Many prominent shopping centres are under redevelopment, adding additional retail space and mixed purpose elements such as condos on mall parking lots. For example, phase 2 of a major redevelopment is underway this spring at McArthurGlen Group’s high sales volume outlet mall, near the airport:
The second phase of McArthurGlen Group’s outlet mall near Vancouver International Airport will expand by 84,000 square feet this spring. This outlet centre is a top sales performer in Canada with a reported $1,220 in sales per square foot per annum, behind only Oakridge Centre at $1,579 per square foot and Pacific Centre at $1,531 per square foot in sales, according to the International Council of Shopping Centres.– Vancouver Courier
In fact, Oakridge Centre is also undergoing a significant expansion with QuadReal’s redevelopment of the 28.5-acre site at Cambie Street and West 41st Ave. This is currently the largest retail development in progress in Metro Vancouver and will include 10 towers, 3 mid-rise buildings for office, commercial and residential use, along with 100,000 square feet of new community space.
Vancouver’s multi-family market has been very robust going back to 2017 with skyrocketing sales activity, carrying through to the third quarter of 2018 when sales volumes increased by 3.9 per cent over the second quarter, according to the Real Estate Board of Greater Vancouver. However, in December 2018, the city of Vancouver introduced legislation that will make operations more difficult for owners of multi-residential buildings as they will be required to offer tenants the option of temporarily moving out without ending their lease or facing rent increases.
Higher interest rates and a cap on annual rent increases at 2.5 per cent for 2019, stipulated by the government of B.C., are also putting downward pressure on the market. There is a housing affordability crisis in Vancouver with vacancy rates around 1 per cent and limited supply, spurring governments and regulators to try to ease the pressure, but these efforts are likely to give investors some pause for consideration in the sector.
Regardless of market conditions, Marcus & Millichap is happy to guide investors toward lucrative opportunities as they arise. Rene Palsenbarg and his Western Canadian Team are excited by Marcus & Millichap’s recent efforts to bolster our brand as North America’s largest commercial real estate brokerage, with the acquisition of established of brokerages in Montreal and Ottawa last year and the opening of a new office in Edmonton, which has already “hit the ground running,” with several prolific listings under our Institutional Property Advisors (IPA) banner according to our Vancouver Operations Manager, Wynda Wauran.
At the end of January 2019, Marcus & Millichap attended the International Council of Shopping Centres’ (ICSC) conference in Whistler B.C. for the first time. Rene expects his team to attend again next year, especially for the brand exposure garnered by his Hospitality Team members, Shay Dadon and Bill Jassal, who service Vancouver’s hotel sector. Rene and his team were also pleased to see good representation and support for this endeavour from Marcus & Millichap’s head office.
The Vancouver team was also very excited to be a first-time sponsor at the Vancouver Real Estate Forum in early April. Since its inception in 1994, it has grown into the “largest annual conference on investment, development, leasing and financing in the region.” Staying abreast of current trends and market conditions, while networking and building relationships with industry colleagues, epitomizes Marcus & Millichap’s spirit of collaboration, which has made us the largest commercial real estate brokerage in North America, continually striving to offer the best investment options for our valued clients.
If you’re a commercial real estate investor seeking opportunities in Western Canada, or through the vast inventory of assets Marcus & Millichap has to offer across Canada and the U.S., we invite you to contact us, we’d love to hear about your investment interests and requirements.
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