Strong start
CBRE Ltd. was the first major brokerage to release data indicating the strength of Canada’s investment market in 2018, and the numbers look good for Vancouver.
CBRE lauded the second quarter as a record for Canada as a whole, with $16.5 billion in commercial real estate transactions. Toronto and Vancouver remain the primary destinations for investors, with Toronto attracting $5.7 billion and Vancouver accounting for $3.2 billion worth of deals.
CBRE credited deals for two major investment trusts – Canadian REIT, owner of 1185 West Georgia and 1508 West Broadway, and Vancouver-based Pure Industrial Real Estate Trust – for driving nearly half the national volume in the second quarter.
Tony Quattrin, vice-chairman of capital markets with CBRE, added the purchase of Investors Group’s nine office properties in Metro Vancouver as another significant contributor to local investment volumes.
He added that a rising tide of suburban office deals also contributed to the tally. Together, the activity puts Vancouver on track for a record year.
“This is as busy as we’ve ever been in Vancouver,” he said. “The pipeline continues to show signs this will be a record year.”
High-profile sales such as Telus Garden and off-market transactions such as the sale-leaseback of 1311 Howe Street and 468 Terminal Avenue point to the market’s ongoing strength and underscore the potential for a new benchmark tally.
Sales data for the past five years underscores the potential.
During 2018’s first half, Vancouver investment sales totalled $5.6 billion. This was the second highest since 2013, lagging behind only 2017.
However, during the past five years annual tallies of investment sales have averaged 2.1 times those of sales reported in the first six months of each year. This means 2018 investment deals in Vancouver could exceed last year’s blockbusting total of $11.75 billion.
Steady pace
Apartment properties are among the assets with steady investor demand, as the Goodman team at HQ Commercial reported earlier this summer. Goodman numbers indicate that 89 purpose-built rental buildings changed hands in 2018’s first six months, versus 87 a year earlier. Total dollar volume was $1.4 billion, up 7% from a year ago.
The province’s recent announcement that the annual allowable rental increase for 2019 is 4.5% should encourage investors. However, it’s hardly welcome news for tenants, who last year faced an allowed increase of up to 4%, the biggest boost since a 4.3% increase in 2012. This year’s hike is even more dramatic, ranking as the biggest increase since the 4.6% allowed in 2004.
The increases reflect the annual rate of inflation plus 2%, which should ideally link rents to real-world pricing. However, the maximum rents Vancouver allows for new units built under its development cost levies-waiver program designed to encourage affordable rental housing have generally taken much greater leaps.
While maximum allowable rents for one-bedroom apartments declined 1% this year, allowable rents for studio apartments rose 10% after a 7.9% increase last year. Two-bedroom units increased a gentler 8.5% after rising 10.8% last year.
However the biggest gain was in three-bedroom unit rents, which increased by more than 11% in each of the past three years – including a stunning 16.3% increase last year.
The monthly rents for units in projects approved in 2018 are capped at $1,242 for studios, $1,561 for one-bedroom units, $1,972 for two-bedroom units and $2,338 for three-bedroom units. The caps for rents for west-side apartments are 10% greater.
Metro Vancouver defines an affordable rent for Vancouver, based on the median monthly income of city residents, as $1,256 a month.
Vancouver bases its maximum allowable rents for new units on the average Canada Mortgage and Housing Corp. reports for all residential units built in the city since 2005 in its annual rental market report. •
