Property price spike set to drive up city’s downtown office taxes

Unintended consequences

Pricing for strata office space at Bosa Development Corp.’s 320 Granville Street tower continues to draw attention, but as Chuck We of Oxford Properties Group recently told commercial real estate association NAIOP, it might not be kind to downtown landlords.

“When BC Assessment sees that office space is now worth north of $2,000 a foot, that works back into their land valuations,” We said. “So when you go ahead and rezone and they’ll happily collect taxes on that basis.”

It’s not just tax assessments that could be affected; community amenity contributions (CACs) are also linked to property values. The discussions regarding them are often long and hard, as the negotiations regarding the former post office site in the 300-block of West Georgia highlight. Moreover, the cost to residential developers can be significant, boosting what finished units cost and, ultimately, market value – the lift that’s critical to CAC negotiations. City planning staff acknowledge the connection, unless land costs reflect the yet-to-be-negotiated CACs.

With the latest numbers from market research firm Urban Analytics Inc. indicating square-foot pricing surging toward $3,000 downtown, busting through $1,500 in Mount Pleasant and $1,200 in Joyce-Collingwood, developers are anxious, and new city policies regarding CACs aren’t calming them. Vancouver council last week ditched CAC negotiations for low-density rental projects and embraced standard fees for pure commercial developments, but negotiations remain for large rental projects and commercial strata rezonings. How escalating prices influence CACs concerns Urban Development Institute president and CEO Anne McMullin.

“We look forward to a continued collaboration with the city to improve CAC negotiations and move to more fixed fees when possible,” she said.

Highs and lows

It’s no surprise that Metro Vancouver rental markets remain tight. Canada Mortgage and Housing Corp.’s latest survey report has vacancies at 0.9%, up from 0.7% a year ago as a surge in new units entered the inventory. Rents increased 6.1% in turn to an average of $1,297 a month.

But the addition of 268 new units to the Langley market also translated into the single biggest rise in rents. Three-bedroom units now rent for $1,752 a month, 53% more than they did a year ago. Overall rents for the market increased 16.8% to $1,180 a month.

Three-bedroom units in West Vancouver had the greatest decrease in rents, 1`dropping 7.4% to $3,400 a month. English Bay apartments were the only ones to see rents for all unit types decline, posting an overall decrease of 0.4% to $1,467 a month.

Divergent trends

B.C. retail spending was up 10% over the past year, outpacing the rest of Canada, but Metro Vancouver continues to lag behind the country when it comes to shopping malls.

The opening of Tsawwassen Mills and Tsawwassen Commons added 1.8 million square feet, and Colliers International reports that Metro Vancouver now has 13.13 square feet per capita, up from 11.5 a year ago.

Victoria, meanwhile, has seen its retail space shrink to 12.93 from 13.2 square feet per capita. Jim Smerdon, vice-president and director of retail consulting for Colliers, says the loss of 74,000 square feet of space compounded the shortfall in retail development relative to population growth.

“This has been caused by local market forces such as the redevelopment of small strip centres and/or street-front retail into higher-value residential properties,” he said.

At a recent review of the investment market in the Lower Mainland, Matthew Boukall, senior director, residential, with Altus Group Data Solutions Inc., said retail properties have been a significant focus of real estate investors in both Vancouver and Toronto seeking properties to hold and intensify.

Retail properties accounted for 19% of investment volume in Metro Vancouver in the first half of 2017; residential land sales accounted for 35% of volumes.

“What we are seeing is just delayed redevelopment opportunities,” Boukall said of the retail investments.•