Where to buy in a year of change and challenges
Frank O’Brien, (WESTERN INVESTOR) — Industrial and multi-family sectors appear the safest sectors for investors in 2019
Canada’s economy is posting minuscule growth, but the largely government policy-driven downdraft will fan residential rental demand and the industrial sector appears largely immune.
In comparison, the retail and office sectors – the latter with the exception of Metro Vancouver – will continue to face headwinds as consumers and corporate spending contract in most western Canadian markets.
The following is Western Investing’s annual guide to where to safely place your commercial real estate investments in 2019 as Canada and Alberta face elections – and the potential of a change in leadership.
The play: multi-family rentals; office market; industrial speculation
Metro Vancouver’s commercial and industrial real estate sector is coming into 2019 with arguably the best market conditions in Canada. It is witnessing a rare confluence of among the lowest vacancy rates in North America, record-high prices and sustained development that is confidently pushing up office towers, industrial parks and multi-family rental buildings across the entire region.
“It is a historical time for Metro Vancouver’s commercial real estate,” said market analyst Andrew Petrozzi of Avison Young’s Vancouver office.
Vancouver’s downtown office vacancy rate is experiencing record-high prices as leasing costs nudge all-time highs. There are 1.6 million square feet of new offices under development in downtown Vancouver, but most of the space is already claimed.
“The market is showing no signs of slowing down in terms of rental rates. With no major new office buildings delivered until 2021, tenants with upcoming leases are competing within a very tight market,” said Jon Bishop, executive vice-president and managing principal of Devencore’s Vancouver office.
Industrial: Vancouver bare concrete industrial space sells for higher prices than luxury residential condos in any other Canadian city. In Vancouver’s Mount Pleasant and other uptrending zones light industrial space is fetching from $800 to $1,000 per square foot.
The strength of Metro Vancouver’s industrial market is attracting foreign buyers. Unlike residential real estate, industrial is not subject to B.C.’s 20 percent foreign-buyer tax and is not experiencing a historic meltdown this year.
The latest property transfer data set from the province indicates that the proportion of foreign buyers in B.C. residential deals dropped in 2018.
Rising industrial lease rates mean good cash flow for owners, however, and that’s where foreign buyers are taking note. Net lease rates have doubled in the past two years, and prime new properties can fetch $18 per square foot.
“We’re seeing offshore money, for the first time, coming into industrial because they understand and can see the quality of the investment,” said Todd Yuen, president, industrial, at Beedie. “The rents have finally caught up to the point where we can start to push the development cycle a little bit.”
Multi-family: The sector still has about the lowest vacancy rate possible, in the 1 percent range, according to Canada Mortgage and Housing Corp., and sky-high house and condo prices will keep tenants in place.
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