Metro Vancouver commercial is the new residential

Foreign buyer’s tax helping convince investors to switch to warehouses, retail, land

Moojan Azizi, Re/Max Commercial Advantage: Vancouver commercial real estate, not residential, now prime investor target | Submitted

The buyer, a landed immigrant, couldn’t speak English but he made it clear to real estate agent Moojan Azizi what he wanted: Vancouver commercial real estate.

In August, the buyer snapped up an aging industrial property on north Clark Drive in Vancouver for $13 million, roughly equivalent to $33 million per acre for the .39-acre site.

The old wood-frame building currently houses a small automotive upholstery company.

“Buying based on income [from the property] does not make sense anymore,” said Azizi, broker-manager with Re/Max Commercial Advantage in Vancouver. “It’s all about future land development.”

While the Clark Drive sale was in the works before B.C.’s 15% foreign-buyer tax on Metro Vancouver residential kicked in August 2, Azizi said his office is preparing for a huge increase in offshore investors switching from residential to commercial.

“It is already happening,” he said, “it just makes sense.”

For instance, a $13 million residential sale to a foreign buyer would be exposed to $1.95 million under the new tax. Commercial real estate, including land bought for potential rezoning for residential development, is exempt from the tax.

In the first half of this year, Lower Mainland commercial real estate sales soared 94% from a year earlier to $7.1 billion, according to a recent Re/Max study. The largest portion was land sales, which nearly doubled to $3.5 billion. Re/Max noted “increasing demand from foreign investors” from both Asia and the United States.

“A large portion of [Metro Vancouver] is now comprised of development sites that are ripe for a historic makeover,” noted Nolan Rivers, a tax consultant with Altus Property Group appraisers.

The post-foreign tax experience of the multi-family rental market is evidence of the sensitivity of Metro real estate to foreign investors.

Considered income-producing commercial property by the Real Estate Board of Greater Vancouver, apartment buildings are ruled residential property by the B.C. government and subject to the new foreign sales tax.

In 2016’s first eight months, 145 Metro Vancouver apartment buildings sold, and the dollar volume increased 95% from a year earlier to $1.3 billion.

Most analyst said a lack of inventory, not foreign buyers, was to blame for the increase, which saw prices of aging Kitsilano apartment buildings soar as high as $750,000 per suite.

Since the foreign tax was introduced, however, a flood of apartment properties has hit the Metro market.