Canadian home prices still sluggish

Steve Randall
Canadian Real Estate Wealth

Canadian home prices have lagged inflation over the past year according to a leading index.

The Teranet-National Bank Composite House Price Index gained just 0.44% in the 12 months to July 2019 and gained 0.72% from the previous month. The 12-month increase was the smallest recorded since November 2009.

The Index posted a reading of 226.57, which means that home prices have increased by more than 126% since the base value of 100 was set in June 2005.

The weakness revealed by the index is not universal and the national HPI has been depressed by Vancouver’s index loss of 6.2% over the past 12 months, corresponding to a 12-month string without a gain.

Other Western markets including Victoria, Calgary, Edmonton, and Winnipeg, have also contributed to the weakness. These markets have seen some improvement in sales though recently and this should start to support prices.

For central and eastern parts of Canada, the index has been boosted, but even here the gains posted in the past three months have been weak compared to the 21-year average for these months.

Vancouver was the only metropolitan area surveyed whose run of monthly declines continued in July. Indexes for the other 10 markets of the composite index were all up on the month: Quebec City 0.1%, Edmonton 0.5%, Victoria 0.6%, Calgary 0.7%, Toronto 1.3%, Hamilton 1.3%, Halifax 1.6%, Montreal 1.7%, Ottawa-Gatineau 2.0% and Winnipeg 2.9%.

Copyright © 2019 Key Media Pty Ltd

REMAX Condo Plus on Zillow platform

Ephraim Vecina
REP

Real estate marketplace Zillow has announced that it has cemented agreements with over 250 Canadian brokerages and franchisors to display housing listings on its online platform and mobile app.

Among the platform’s latest brokerage partners include iPro Realty, RE/MAX Condo Plus, and Living Realty.

The announcement came in the wake of Zillow’s updated metrics, which indicated that the provider saw a 32% year-to-date increase in its monthly Canadian unique users.

“Zillow has long been a go-to real estate resource in the U.S. for consumers and our partners in industry, and it’s exciting to see more than 250 Canadian partners using Zillow,” Zillow Group chief industry development officer Errol Samuelson stated.

“Canadian listings on Zillow have the benefit of our audience of 195 million unique monthly users which includes a quickly growing Canadian audience.”

At present, Zillow.com has more than 4,500 Canadian agents with profiles on the platform.

“iPro Realty has more than 1,700 agents who are constantly looking for ways to promote themselves, their listings and provide their clients with great service,” iPro Realty CEO Rui Alves said. “With our listings now visible to Zillow’s large, international audience of home shoppers, our clients will receive the advantage of their homes receiving even greater exposure.”

“We pride ourselves at being at the cutting edge of real estate,” RE/MAX Condo Plus broker of record and owner Jamie Johnston added. “We think our association with Zillow is another opportunity for our agents to demonstrate their value to the public.”

“We feel with the experience they have had in the U.S., they will be able to deliver to buyers and sellers in Canada the type of technology clients in the U.S. have enjoyed for years,” Living Realty broker of record Kelvin Wong said.

Copyright © 2019 Key Media Pty Ltd

Metro Vancouver commercial construction booming

Neil Sharma
Canadian Real Estate Wealth

While residential market activity in Vancouver is markedly slower than in years past, the commercial sector is on fire.

“There’s a significant amount of commercial activity going on within Metro Vancouver, with 2.8 million square feet of office product under construction,” said Kirk Kuester, Colliers International’s executive managing director for British Columbia. “The development business, from a residential perspective, is either grinding to a halt or has ground to a halt. When projects finish, there’s not a lot to be introduced on the residential side that will pick up the slack, other than what’s happening on the commercial side with retail, industrial and office.”

One such project is The Post by QuadReal Property Group, where Amazon has committed to occupy 35% of its 1.13 million square feet. Upon competition in 2023, The Post will host an estimated 7,000 workers.

That isn’t to suggest heightened commercial real estate construction means space is aplenty. Kuester says vacancy continues to be an issue for would-be tenants, especially in the industrial sector.

“The industrial market is going like gangbusters,” he said. “It’s a challenge today because of extremely low vacancy and extremely limited land, and lots of ongoing demand as a result of e-commerce and record volumes coming through the port.”

A recent economic outlook report from Central 1 Credit Union noted that building permits for non-residential construction shot up more than 60% through May, and while most of it is for infrastructure development, much is slated for retail projects.

“There’s been a doubling up of government permit volume this year,” said Bryan Yu, Central 1’s deputy chief economist. “June data has since been released, showing a slight moderation in growth in total non-residential permits to 56%, with commercial up 55%. Government permit volume is still nearly double year-ago levels.”

“On the housing side, we’re looking at a policy-constrained environment, but on the non-residential side we’re seeing quite a bit of growth, even on the Lower Mainland with technology companies like Amazon,” Yu added.

The industrial market is undersupplied, as about 5.5 million square feet were quickly absorbed. Kuester warns that costs are escalating and that could cause headwinds henceforth.

“Costs across the board in B.C. have become a really big issue because of all the activity, either through infrastructure, residential or commercial real estate development,” he said.  

Copyright © 2019 Key Media Pty Ltd

Whoever is producing content from an educational or entertainment perspective is either winning now

Danny Kucharsky
REM

In any given week, Jas Takhar may be posting a video about a $14-million US penthouse condo at Hudson Yards in New York City, a podcast about wine or a meaningful Instagram quote.

The co-founder and managing partner of Don Mills, Ont.-based REC Canada abandoned traditional advertising for online content a bit over a year ago and has not looked back. Providing a regular stream of content everywhere from YouTube to Spotify has been a game changer, he says.

“My brand equity has shot through the roof,” Takhar says. “Most people who meet with me now have done a little bit of a digital dive into me and they’re coming with open arms. I’m spending no time on telling them who I am and what I do. The credibility speaks for itself.”

He says about four or five people a day discover him through his online content “that didn’t know me from Adam before they saw a video or a podcast and said, ‘Can we meet and have a coffee?’”

“I’m no longer selling; I’m allowing people to find what I really do.”

At REC, which he co-founded about 15 years ago, Takhar manages a team of 32 Realtors that does about 650 transactions annually and he’s involved in about 120 of them. REC – which stands for Real Estate Centre – operates under the Royal LePage Signature banner.

Takhar decided to stop putting his marketing dollars in traditional media like billboards and TV because “I just don’t think anyone’s attention is there anymore.”

He says people’s attention is now on videos, podcasts and social media in general and he wants to be where people’s eyes and ears are.

“By me doing a video, I’m able to have content and content is king right now. Whoever is producing content from an educational or entertainment perspective is either winning now or will win in the future.”

About six months into his online content venture, Takhar hired a full-time media team, which includes a videographer, copywriter and graphic artist. Not only does having a media team allow him to spend more time selling and meeting with clients, but it helps him attract bigger-name guests.

“I knew that to get more high-profile guests, they needed to take me a little bit more seriously, and equipment would help in that perspective.” Guests are now taped in a full-blown studio that Takhar built in his office.

Guests have ranged from the Los Angeles stars of Bravo’s Million Dollar Listing and Scott McGillivray of HGTV’s Income Property to Royal LePage president and CEO Phil Soper.

But Takhar doesn’t just talk to high-level businesspeople and TV stars. He’ll post content on people launching a bakery, clothing store or gym about the ups and downs they’re going through.

By transferring his marketing spend to the internet, Takhar is spending about 25 per cent more than he used to spend on traditional advertising, but “it’s been the biggest game changer in my 15-year real estate career.”

Takhar, who was initially uncomfortable with video content, launched a YouTube page in January called the REC Experience Podcast and now posts videos on a consistent basis. As of early August, the videos had more than 30,000 views and about 620 subscribers, numbers he is in the process of building upon.

Video gives him the opportunity to get much more content, he says. “What video allows me to do is rip the audio and also take still images and do some quote overlays and also write a longform blog.”

Takhar believes in providing a large amount of content online. “Out of the quantity will come quality,” he says.

Although much of the online content focuses on real estate, Takhar also has a strong interest in putting the spotlight on entrepreneurs and leaders in other fields.

Some of the podcasts teach people how to sell their own home “because I know that less than two per cent of the marketplace will do it. And if I’m the guy who’s giving the information and being authentic about it, and not caring if they use me, they generally come back.”

It doesn’t make sense for Realtors to act like gatekeepers and hide that information, since it’s all online, he adds.

Many people ask Takhar how they can get started with online content. Find out what you’re most comfortable with – whether it’s videos, audio or the written word, he advises them.

“Someone will say ‘I’m a little bit of an introvert; I don’t like the camera. I get shy and I get scared.’ But you might be okay on a phone call and a podcast is phenomenal for that because it acts like a phone call.

‘Others may say, ‘I don’t want anybody to hear my voice.’ No problem. Write about it.”

Videos are “the mother ship” of all three possibilities because you can get podcasts and blog content from it.

He notes people starting out have no need for fancy equipment – a smartphone is all that’s needed to record video and audio.

Takhar urges people who are hesitating to “get over yourself” and just get started with online content. “I was scared too because I have a stutter sometimes – I just had to get over it and when I did it just became very freeing to me. The opportunities that have come my way, I couldn’t have even dreamed about them.”

© 2019 REM Real Estate Magazine

Vancouver’s got the world’s weakest luxury-housing market

Josh Sherman
Livabl

It’s not a repeat performance worth boasting about.

Despite some signs of stabilization in the broader Vancouver housing market, the luxury segment is still dead last in a regular global ranking.

Each quarter Knight Frank, a major real estate consultancy, ranks luxury markets around the world in terms of price performance.

Vancouver’s annual luxury home price decline of 13.6 percent in the second quarter planted it firmly in 46th place out of 46 markets, according to Knight Frank’s Prime Global Cities Index.

Knight Frank typically considers properties priced in the top 5 percent of a market to be luxury homes.

Vancouver has occupied last place since 2018’s third quarter.

No other city experienced a double-digit annual collapse this time around, although Istanbul was close with prices plunging 9.9 percent annually.

Vancouver is also miles away from Toronto in terms of price trajectory. There was a whopping 17.4-percentage-point difference between the two markets.

Toronto, the only other Canadian market the index captures, placed 13th, with prices climbing 3.8 percent annually and 2.8 percent on a quarterly basis.

If there is a bright spot for well-heeled homesellers in Vancity, it may be that the rate of quarterly price declines is decreasing.

For example, Vancouver luxury home prices were down 2.4 percent in the second quarter compared to the first, but that’s a full percentage point less than the previous quarterly drop.

Istanbul and Tokyo were the only cities to post larger quarterly declines, at 5.1 percent and 2.6 percent, respectively.

But weaker conditions are widespread, with the 46-city index price increasing 1.4 percent in the first half of the year, well short of the four-year average (3.8 percent).

“Sluggish economic growth explains the wave of interest rate cuts evident in the last three months as policymakers try to stimulate growth,” writes Kate Everett-Allen, a partner at Knight Frank, in the index report.

“Much hinges on the next three months with stronger headwinds on the horizon we expect the index to moderate further in the second half of 2019 before strengthening in 2020,” Everett-Allen continues.

Prime property prices increased on a year-over-year basis in 35 out of 46 markets, led by Berlin, where prices soared by 12.7 percent annually, remaining unchanged from the previous quarter.

Ditto for Frankfurt, which had a slightly slower pace of luxury home price inflation of 12 percent.

© 2019 BuzzBuzzHome Corp

Problems with Kitec piping in homes

Martin Rumack
REM

Kitec piping was sold and used between 1995 and 2007. It was used in new home construction and in renovations of some existing homes as a piping system for carrying water throughout the house, and for supplying water to radiant heating systems for both the home and for flooring and heated towel racks. The outside is prominently stamped with “Kitec” and is made of plastic (cross-lined polyethylene or PEX), while the inside is lined with aluminium. The pipe is usually orange in colour, but in some cases may be blue, grey or white.

What’s the issue with Kitec?

Some homes that contain Kitec have reportedly been riddled with problems: deterioration of the fittings, as well as the disintegration of the pipes themselves in some cases. The problems with Kitec were so significant and so rampant that the manufacturer, IPEX, was sued by various end users in the U.S., Ontario and Quebec in a class action lawsuit. IPEX eventually settled those claims for $125 million.

If you think you may be eligible to take part in that settlement, contact a lawyer and see www.kitecsettlement.com for more information. The deadline for submitting a claim is January 9, 2020.

The stigma

The result of these problems, and the ensuing frenzy of corporate litigation, is that in the resale market there appears to be a stigma affecting those homes containing Kitec pipes – similar to the stigma that affected those homes containing urea formaldehyde foam insulation (UFFI) in the 1970s and 1980s. That stigma continues todoy, which is the reason for the UFFI clause in all Agreements of Purchase and Sale. The agreement should also provide a representation and warranty that the property does not contain Kitec.

To amplify the problem, some insurance companies are now refusing to provide insurance for properties containing Kitec based on the insurers’ liability risk assessments. Many financial institutions require confirmation that the property does not contain Kitec. This makes these properties even less attractive to potential buyers.

The issue is not confined to single-family homes that may have Kitec installed – it also affects many condominium buildings that also contained or still contain Kitec. These condominiums now face major expense and inconvenience to have it removed and replaced. The financial costs of remediating this problem has resulted in many condominiums requiring special assessments levied against the owners to fund the removal of the Kitec and installation of proper piping. Owners and property managers must disclose the presence of Kitec if it is contained in the common elements of the condominium and/or the units themselves.

These large-scale remediation undertakings can even spark costly litigation. In a recent Ontario court decision, for example, the court was asked to rule on the fairness of the tender process that was used by the condominium corporation to solicit bids by contractors to participate in a very large-scale Kitec replacement project covering 209 units in a 10-storey building. In that case, the dispute was between the corporation and one of the unsuccessful contractors, who had assumed – based on certain verbal dealings with the condo board – that he would be chosen as the single contractor hired to replace all the heating piping, including the pipes located inside the individual units.

In fact, there was something of an informal solicitation by the condo corporation, directed at him and at least two other bidders. This prompted some misunderstanding on whether a contract had ever been reached with him, and on the level of commitment to the remediation plan he proposed. There were also some objections by unit owners who did not want the particular contractor to do the work within their specific units.

Against the background of this dispute, the court ordered the condominium corporation to use a formal tender process to solicit bids from a wider base of contractors. Perhaps ironically, that process resulted in the contractor being excluded even though he had previous experience working in the building, and even though the condo corporation itself seemed to want to choose him for the work. Nonetheless, the corporation awarded the Kitec remediation contract to someone else.

The contractor’s motion for summary judgment, asking the court to recognize the existence of a contract and awarding him damages, was dismissed. The matter was sent on to trial, but not before the condo corporation incurred significant legal fees to get the matter dismissed by the court at the early stage. (The main trial in this matter is still pending.)

The case highlights the fact that Kitec remediations can be complex, involving unforeseen parties and prompting costly unwanted litigation.

Helpful tips

Here are some tips on what to do if you own, or suspect you own, a property with Kitec installed.

How do I find out if my home has Kitec pipes?

If you have a home with radiant heading and a water heating system that was installed between 1995 and 2007, it is worthwhile to have a qualified plumber come in to do an inspection to determine whether Kitec was used in the installation, and if so, whether there has been any deterioration or damage.

If it turns out that Kitec has been used in your home, the best thing to do is to have it immediately replaced. With that said, the decision may be contingent on various things, including the plumber’s assessment of any damage versus the estimated replacement cost, and whether you are planning to sell the home in the future.

What if decide to sell my home?

If your home contains Kitec and you decide to sell without replacing it first, the existence of the Kitec should be disclosed, either on a Seller Property Information Sheet (if you are using one), or merely as part of the general disclosure obligation on the part of sellers that extends to any potential buyers.

While it may be tempting to keep quiet and rely on the concept of “buyer beware”, the decision to provide up-front disclosure prevents the successful buyer from coming back to assert a legal claim for damages against you, should the previously undiscovered Kitec come to light post-closing, after costly repairs or replacement are needed. It also eliminates any accusation against you that you have fraudulently misrepresented the condition of the property or have actively concealed the presence of Kitec; such allegations can be actionable in law and can result in costly litigation. And if the allegations are proven true, you can be liable to the buyer in damages, including punitive damages, as well as legal costs.

If you decide not to replace the Kitec before listing it for sale, it may nonetheless be worthwhile to have a reliable quote for its replacement handy. This way you can use the information as a “bargaining chip” in the price negotiations with the buyer, when it undoubtedly comes up in response to your disclosure, or on his or her own initiative.

Even if you are briefly tempted not to disclose the existence of unremedied Kitec, any prudent potential buyer will probably hire a home inspector, who is likely to point out its presence. This will put you back where you started, in terms of having to replace or account for the cost of replacing the Kitec in your home, with the added element of potential mistrust on the buyer’s part, when it comes time to negotiate a favourable deal.

© 2019 REM Real Estate Magazine

Vancouver luxury market ranks 46 in global research

Steve Randall
Canadian Real Estate Wealth

A global ranking of luxury housing markets has highlighted the divergence of Canada’s two largest markets.

Vancouver remains at the bottom of the table of 46 cities worldwide compiled using Knight Frank’s global research network while Toronto ranks 13th.

The Prime Global Cities Index tracks the movement in prime residential prices of the 46 cities.

Second quarter stats show Berlin at the top with a 12.7% increase over the past 12 months but no movement in the past 3 months. The top 5 includes Frankfurt (up 12% over 12 months / 0% over 3 months), Moscow (up 9.5% / 1.8%), Manila (up 6.2% / 0.8%), and Geneva (up 6% / 1.7%).

Vancouver sits at the bottom with a 13.6% decrease in prices over 12 months and a decrease of 2.4% over the past 3 months.

It’s the only city among the 46 to post a double-digit decline. Other cities that have lost value over 12 months include Auckland (down 7.5%), London (down 4.9%), and New York (down 3.7%).

Meanwhile, Toronto posted a gain in prices of 3.8% over 12 months and 2.8% over 3 months, making it the highest-ranking city in North America among the 46, beating Miami (1.5% 12-month gain), San Francisco (1.2%), and Los Angeles (0.7%).

Copyright © 2019 Key Media Pty Ltd

Woodfibre LNG on the cusp of a contract

Geoffrey Morgan
The Province

In a few short weeks, Woodfibre LNG is poised to become the second liquefied natural gas export project to break ground on Canada’s West Coast even as other advanced Canadian LNG proposals have been delayed yet again.

Woodfibre LNG, a subsidiary of Singapore-based Pacific Oil and Gas Ltd., is finalizing its engineering, procurement and construction contract, which company president David Keane expects to sign “at the end of the summer or shortly thereafter” before construction begins on the LNG export facility in Squamish, British Columbia.

“Our senior management, our chairman (Sukanto Tanoto), has been actively involved and once we sign our EPC contract then the next phase is moving into active construction,” Keane told the Financial Post. “Before we can proceed, we have to sign the contract, so we are hoping to have a final investment decision at the end of the summer or shortly thereafter.”

There are no other obstacles impeding the project, he said, as the company finalized its impact-benefits agreement with the Squamish First Nation, received its permits from the B.C. Oil and Gas Commission and permissions from the federal government to avoid punitive steel tariffs earlier this year.

Keane said the contract negotiations are largely focused on details right now and he remains confident the company will sign the contract in the coming weeks.

If all proceeds as planned, the $1.6-billion Woodfibre LNG project will follow in the footsteps of the Shell Canada Ltd.-led LNG Canada project near Kitimat, B.C. and begin construction, making it just the second such Canadian project of a list that at one point numbered 20 project proposals to take that step.

Woodfibre and its parent company have been quietly aligning all the pieces necessary to proceed with the project in recent months. Keane said the company has been negotiating with China National Offshore Oil Corp. (CNOOC) and an unnamed Japanese utility company for offtake agreements for the remaining two-thirds of the project’s LNG production.

Woodfibre is designed to export 2.1 million tonnes of LNG per year, which would make it a smaller scale project compared with LNG Canada, which will have an export capacity of 14 million tonnes per year when completed.

In May, Pacific Oil and Gas bought upstream natural gas producer Canbriam Energy Inc. for an undisclosed sum. Canbriam produces roughly 200 million cubic feet of natural gas per day and 6,000 barrels per day of associated gas liquids.

Like all natural gas producers in Canada, Canbriam has struggled in the face of low commodity prices to the point where Suncor Energy Inc., which previously owned a minority stake, wrote its investment “down to nil” last year.

The acquisition of Canbriam and coming FID on Woodfibre then, could provide a morale boost to the upstream natural gas industry in Canada, which has been suffering through persistently low prices this year and led to stock prices at many gas producers falling to all-time-lows. The upstream price of natural gas in Alberta averaged just 41 cents per thousand cubic feet at the end of last week, compared with a Henry Hub benchmark price in Louisiana of US$2.19 per mcf.

“I think it’s important psychologically for the industry and for Canada. We’ve always said that an LNG industry in British Columbia would be beneficial for all Canadians from the East Coast to the West Coast,” Keane said.

The construction of Woodfibre LNG is a small but important step for the natural gas industry as it demonstrates the B.C. government remains supportive of the nascent LNG export industry in the province, Raymond James analyst Jeremy McCrea said.

Other LNG export projects have faced delays, which have also weighed on sentiment in the gas sector.

David Keane, president, Woodfibre LNG

In July, Pieridae Energy Ltd. announced it was delaying a final investment decision on its $10 billion Goldboro LNG project in Nova Scotia until 2020 after it switched EPC contractors and as it was continuing to look for bridge financing for the project.

“It’s been a challenge in this market to raise funds. We feel we have a shovel ready project,” Pieridae spokesperson James Millar said.

“Our lone remaining hurdle is raising the bridge financing,” he said, adding the company had loan guarantees in place from the German government and is fully permitted.

Global debt and equity markets have been particularly challenging for mid-sized Canadian energy companies in recent years, and the lack of capital available for the oil and gas sector has hampered projects like Goldboro. “It’s a shame,” Millar said.

Similarly, Calgary-based Pembina Pipeline Corp. had hoped to make a final investment decision on its $8-billion Jordan Cove LNG project in Oregon this year but that has been delayed as the U.S. Federal Energy Regulatory Commission won’t be issuing permits for the facility until Jan. 2020.

“I think people are looking for diversification away from the Gulf Coast for a variety of reasons and I think Jordan Cove provides that diversification, where you have the ability to be attached to a Western Canadian Sedimentary Basin with challenged feedstock pricing,” Pembina senior vice-president and chief operating officer Jaret Sprott said on the company’s earnings call this month.

© 2019 Postmedia Network Inc.

Metro Vancouver has gone a year without an increase in its house price index.

Hayley Woodin
Western Investor

Metro Vancouver has gone a year without an increase in its house price index.

The latest report from Teranet and National Bank shows the region’s house price index fell one per cent from June to July. It was the twelfth consecutive month without an increase. Metro Vancouver was also the only metropolitan area surveyed that saw its index fall in July.

Prices were down 6.2 per cent over July 2018, the market’s peak.

The other B.C. region in the Teranet-National Bank national composite house price index is Victoria, which saw its index rise 0.6 per cent in July on both a monthly and yearly basis. The index is a fraction — a twentieth of a percent — below the market’s peak in September 2018.

Weakness in the Metro Vancouver market helped weigh down Canada’s national house price index. It registered a 0.4 per cent year-over-year increase — the smallest 12-month gain in nearly a decade (since November 2009).

On a monthly basis, the unadjusted index was up 0.7 per cent. The gain falls below the month’s 21-year average of a one per cent increase.

Copyright © Western Investor

Vacancy rates are tight and lease rates have risen across all three sectors, reports market intelligence firm CoStar Group

Joannah Connolly
Western Investor

While Metro Vancouver’s residential sector struggles, its commercial real estate market is holding firm, with vacancy rates extremely low, according to a monthly analysis by commercial market intelligence company CoStar Group.

The group analyzed the office, industrial and residential sectors and offered some forecasts on each market.

Office space

With minimum wages rising and unemployment low, office-based employment is expected to grow by 9.3 per cent in 2019, putting additional strain on the already overstretched office market in Metro Vancouver, according to CoStar.

The report said, “The Metro Vancouver office market continues to show signs of strength as the vacancy rate has continued to decline from 4.0 per cent at the beginning of 2019 to 3.0 per cent to close out the month of July. Strong net absorption levels of 2.5 million square feet over the past year have contributed to this decline, along with the lack of new office space coming to market as of late… Developers are actively working to alleviate this shortage as there are now 26 office projects totalling 4.9 million square feet currently under construction. With that being said, much of this new stock will not be delivered to the market until late 2021 and 2022. Additionally, many of the new flagship office projects that will be coming to market are heavily pre-leased, thus leaving prospective tenants with little options if they did not secure space well in advance.”

Any new buildings that are coming on stream are being snapped up in pre-leasing – but this does offer an opportunity to other office tenants struggling to find space.

Jamil Jamani, senior market analyst at CoStar, told Glacier Media, “Office tenants are continuing to demand higher quality spaces and this has resulted in many new buildings coming to market to be heavily pre-leased. As many of these larger tenants move into their new higher quality spaces, there will likely be a upswing in vacancy in older buildings. This would be the optimal time for firms to secure larger space in the downtown core.”

The report added that the high demand in office space has pushed lease rates up. “While Metro Vancouver waits for new supply to hit the market, average net asking rents have continued to increase, up 2.5 per cent year-over-year, to $24.04 per square foot in July 2019.”

Jamani added, “Although the office market is strong, we don’t expect rents to grow as aggressively as they have, due to new supply coming to market within the next two years. Rent growth will likely return to more normal levels of two to four per cent per year.”

Industrial market

Space is even tighter in Metro Vancouver’s industrial market, said CoStar.

The report said, “The industrial vacancy declined… to 1.6 per cent at the end of July 2019. Net absorptions levels have also increased over the past year reaching a whopping 5.8 million SF. In particular, the region faces extreme shortages of specialized industrial space as the vacancy rate in this segment is at a mere 0.7 per cent.”

Jamani told Glacier Media, “We have started to see strata industrial units continue to play a greater role in the Lower Mainland, especially with rents growing at such a rapid rate over the past three years. Many industrial tenants are now starting to consider ownership as a viable option to control rent increases and avoid the possibility of eviction due to redevelopment.”

According to the report, “The extremely tight market has caused net average asking rents to increase by 12.7 per cent year-over-year to $12.17 per square foot.”

Retail sector

Despite the strong showings of the office and industrial market, CoStar describes the retail sector as the “true gem” of Metro Vancouver’s commercial real estate.

The report said, “Metro Vancouver’s true gem of the commercial real estate market belongs to the retail sector, as the overall vacancy rate has declined … to a record low of 1.3 per cent at the end of July 2019. The surge of demand has been the result of international and luxury brands continuing to increase their presence in Metro Vancouver, and as a result, net absorption topped 2.1 million square feet.”

It added, “Average net asking rental rates [for retail space] have been on an upward trend, growing by 13 per cent year-over-year to $34.44 per square foot. Retailers will now have to make more efficient use of spaces to overcome rising rental costs and continued upward pressure on wages.”

Jamani said, “Many small businesses have continued to face pressure due to rising property taxes as many of their leases are on a triple net basis, and as a result we continue to see many businesses that have been around for years close their doors. This combined with many older retail units being replaced with multi-family developments has also depleted older retail stock and have forced retailers to transition to newer but smaller units.”

Copyright © Western Investor