The surge in Vancouver commercial strata – where space is sold rather than leased – has attracted both foreign buyers and higher city fees for community amenity contributions (CACs), according to a Vancouver appraiser.
“The foreign-entity tax [FET] recently increased to a 20% tax while the B.C. speculation tax steps to 2% annually in 2019 for foreign investors and satellite families. Strata office is exempt from both the FET and the speculation tax, and groups who historically invested in the residential market have shifted their focus to commercial assets to avoid these taxes,” said Brady Fleguel, a principal with Burgess Cawley Sullivan & Associates Ltd.
Bosa Development set an office-strata price record in downtown Vancouver with the pre-sale of half an office tower at 620 Granville at more than $2,000 per square foot this year.
“These prices are record-breaking, even record-shattering,” noted Aaron Ulinder, a senior partner in CBRE commercial real estate.
New strata office space is now selling for more than double the price of similar leased office space, on a per-square-foot basis, Fleguel said.
This has not escaped the attention of Vancouver city hall. In November 2017, the city changed its CAC policy from a project-by-project consultation policy to fixed rates. The CACs usually require contributions of green space, daycare sites or other amenities for public use.
Under the former policy, CACs were based on 75% of the “lift” in value following rezoning.
The new fixed rates are $15 per square foot for downtown commercial buildings and $10 per square foot outside of the core.
However, the new policy excludes all new commercial strata projects, which will continue to be subject to CAC negotiations.
The last major negotiated rezoning in downtown Vancouver was a mixed-use tower at Burrard and Nelson. The project netted the city a CAC package of more than $91 million.
In comparison, the flat-fee CAC policy is expected to generate about $3 million this year, according to Fleguel. The new CAC policy, he said, “shows that the city wants jobs within its borders, but has its hand out in case the numbers look too good.”