A Slowing Vancouver Commercial Real Estate Market Due to a Lack of Product, not Demand
2018 registered a total of 2,002 sales transactions over $1 million, representing a total value of $12.5 billion, a drop of 15% from 2017
VANCOUVER – Altus Group, a leading provider of software, data solutions and independent advisory services to the commercial real estate industry, today announced the fourth quarter of 2018’s results for commercial real estate investment in the Vancouver market area. 2018, the second-best year on record, represents a total invested amount of $12.5 billion, a 15% drop from the $14.6 billion in 2017. The fourth quarter of 2018 saw a total of 424 investment transactions over $1 million, representing a total investment value of $2.7 billion. Demand remains strong for investment properties in the Vancouver market area, despite the challenges in 2018; rising interest rates, trade tariffs and provincial government intervention.
(Vancouver Property Transactions – All Sectors by Quarter)
Combined, the land markets experienced the strongest declines. Overall investment was down 18% and deal velocity was down by 19%, when compared to 2017. The most significant residential land transactions of the year occurred on properties that provided stable holding income, by way of multifamily tenancies or from sale lease-back agreements. Four transactions crested the $100 million mark, and all occurred in either Burnaby, Vancouver or Richmond. The presence of holding income will provide a valuable assist to the new owners as longer municipal planning cycles and rising labour and construction costs continue to impact returns. Despite the rising pressures facing developers, investment in the land markets made up 62% of the market whole.
(2018 Vancouver Property Transactions – Total Dollar Volume by Sector)
Strata properties continue to play an increasing role in the overall market performance. Office, industrial and retail strata markets each posted their best years ever, collectively climbing to $778 million in overall investment, representing 22% of all investment in the three asset classes. Investment in the retail and industrial strata sectors climbed by 34% and 37%, respectively, while office strata investment volumes climbed more significantly in 2018, by 137%, due to newly constructed, and rapid absorption, of strata office towers being released in suburban markets. Record low vacancy rates in the office and industrial markets, favourable interest rates, and customizable ‘shell space’ are all primary drivers in the success of strata properties in 2018 and will continue to ensure that strata properties remain an option for private investors and end users.
The industrial and apartment sectors are two asset classes to post year-over-year increases in overall performance. Industrial assets in the metro Vancouver area continue to be increasingly in demand, with overall investment volumes a result of interest from three main purchaser types; end-users, local private investors and institutional investors. The apartment market is seeing similar competition for the limited supply with local and national private investors vying, some institutional activity particularly in the purpose-built rental market, and developers looking for a medium to long term hold with future intentions.
According to Altus Group’s Investment Trend Survey, investors remain confident, particularly in the apartment market, as overall vacancy rates remain critically low despite climbing rental rates. Despite the industrial sector experiencing similar market conditions, investors remain confident however respondents did indicate a tempered outlook in the coming year.
“Investor appetites remained strong in 2018 and expect the same in 2019. High quality, well located, core assets continue to come to market, and continue to attract much attention. Additional investment in infrastructure projects, particularly rapid transit, will ensure that both land and improved assets continue to increase in value across the region.” Noted Paul Richter, Director, Data Solutions at Altus Group.
ABOUT DATA SOLUTIONS
Data Solutions connects the Canadian real estate industry through the delivery of data with unparalleled breadth, integrity and relevance. We cover new homes, investment transactions and commercial market inventory in key markets, and also provide intelligence on the national housing market and consumer home buying and borrowing patterns.
Our solutions are used by real estate industry stakeholders to gain market intelligence, identify and validate opportunities, benchmark, strategically plan, manage risk and more.
Data Solutions is part of Altus Analytics, the software and data solutions business of Altus Group, where our focus is to empower real estate clients and partners to work collaboratively to enhance decision making, drive performance and optimize transactional efficiency. Our solutions enable firms to better organize and manage data and connect with the right information and analytics to help them gain a complete picture of real estate assets, portfolios and transactions.
For more information on Data Solutions, please visit www.altusgroup.com/datasolutions.
ABOUT ALTUS GROUP LIMITED
Altus Group Limited is a leading provider of software, data solutions and independent advisory services to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology-enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include some of the world’s largest real estate industry participants across a variety of sectors. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF.
For more information on Altus Group, please visit: www.altusgroup.com.
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