Details aren’t being disclosed regarding the stunning $400 million investment a foreign purchaser made in the Lower Mainland on November 15, but it’s the kind of deal that astonishes Jon Ramscar.
Ramscar, a senior vice-president with Jones Lang LaSalle (JLL) in Vancouver, told an Urban Land Institute audience last month that the deal was a sign of the strength of demand for properties in Canada, which are seen as safe havens in an uncertain world.
“A transaction that really blows my mind … is a big bet by an international investor in the Lower Mainland, a $400 million gross development buy,” Ramscar said. “I don’t think that bet was there last year, and I think this is really a sign of the times.”
JLL declined to offer specifics on the deal, though the development most often mentioned on the street as fitting the description is Willingdon Business Park, for which HOOPP Realty Inc. was reportedly seeking buyers earlier this year.
Most brokers to whom this reporter mentioned the deal were busy working on their own transactions, however – testimony to the overall momentum in the Vancouver market.
BC Real Estate Association economist Brendon Ogmundson reports that the commercial real estate investors continue to push through the “often noisy economic data” towards “further growth in investment, leasing and other commercial real estate activity over the next two to four quarters.”
Breaking $10 billion
Real Estate Board of Greater Vancouver (REBGV) data indicates that the third quarter was the busiest in the last five years. Lower Mainland logged 645 commercial sales in the quarter, up 6.3% from 607 in the same quarter of 2015. The aggregate value was down 1.9% from last year, at $2.4 billion.
This echoes the Altus Group’s forecast that transactions would fall “to more historical levels in the second half of 2016.”
Nevertheless, the real estate consultancy’s latest review of the Vancouver market puts the region on track for more than $10 billion worth of sales this year, with deals worth $1 million and up totalling $9.3 billion in the first nine months of 2016.
Consistent with the REBGV stats, sales of land led the way. The Altus Group reports that seven of the top 10 deals in Greater Vancouver during the third quarter were for residential development sites, and of these, five occurred downtown.
With all the sales activity, cap rates for top-tier office space now rival those in Manhattan (according to CBRE Ltd.) and many brokers have been talking about affordability issues.
CBRE names Vancouver’s office space the most expensive in Canada for tech companies, which signed 28.5% of office leases in Vancouver last year and, by some accounts, represent half the active parties in the market.
Tech demand has boosted prospects for everything from strata office space to suburban premises for companies that don’t need to be downtown.
Housing could be next, as wages in the tech sector lag behind rental rates.
CBRE notes that Vancouver has the highest rent-to-wage ratio for the sector at 21%. While the city boasts the top average rent for tech employees, it ranks fifth in terms of wages (low wages help keep expenses in check, with CBRE ranking Vancouver fifth for overall tech operating costs).
JLL’s Ramscar, speaking to the Urban Land Institute last month, said housing affordability is the biggest cloud on the horizon for Vancouver’s real estate markets in 2017, because the companies that want to be here may not be able to promise the kind of housing staff want.
Avison Young principal Glenn Gardner told the Vancouver Real Estate Strategy and Leasing Conference earlier in the month that many workers were looking at cheaper housing in New Westminster or Surrey.
“The cost of living is very expensive,” he said. “The larger tenants who don’t necessarily need to be downtown are going to look to see how they can service those employees the best.” •