Geoff Kirbyson Western Investor
June 21, 2017
Our pick of the most lucrative commercial sectors to invest in across major Western Canada markets
The pick: multi-family rental buildings
The best time to invest in Vancouver real estate was 40 years ago but the second-best time just might be right now.
David Goodman, principal at HQ Commercial and author of The Goodman Report, said the environment for land and multi-family rental buildings is as positive as it’s been in many years.
There are currently 11,000 rental units either under construction, approved but not started or their applications have been submitted. A far cry from the recent past.
“If I had said that three years ago, I would have been committed. There are 6,000 in Vancouver and 5,000 in the rest of metro Vancouver. That’s a healthy sign,” he said.
New development sites are going at $250-$300 per buildable square foot on Vancouver’s west side, about $200 per buildable square foot on the east side and about $100 per buildable in suburbia.
“The numbers are working. In the old days, you couldn’t build a rental (property) if they threw in the land for free. That has changed. With low interest rates and rental shortages, rents have doubled in the last eight years,” he said.
Developers still prefer condos in many cases but because the numbers for rental units are becoming more compelling, they’re looking more closely at that option.
“Tenants will swoop in and rent it as soon as the building is finished or an investor will come in and buy your building. There is unlimited demand,” Goodman said.
The pick: retail real estate
While the office and industrial markets have been hit hard by depressed oil prices, Calgary’s retail sector has emerged relatively unscathed.
The vacancy rate is hovering around four per cent, which is about double what it was for the previous decade, but Ryan Rutherford, vice-president of retail at Avison Young, said the market is healthier than before.
“It’s traditionally been really tight here. With four per cent, there’s been locals that have closed their doors but there are national or American retailers wanting to fill those holes,” he said.
Perhaps more importantly, the increased vacancy gives local entrepreneurs the chance to get their own concepts off the ground that they wouldn’t have had previously.
Rutherford said Calgary is significantly underserved in retail, unlike Edmonton, even though it’s a larger city.
Not every part of the city is unblemished, though. Rutherford said a nine-block area downtown with a mix of office and residential towers has proven to be “challenging” from a retail point of view.
A couple of leading indicators are helping spread further optimism throughout Calgary’s real estate sector. Statistics Canada reported retail sales rose 2.4 per cent in January – the fifth increase in six months – driven primarily by sales of vehicles and parts.
The pick: industrial real estate and retail
If the fourth quarter of 2016 is any indication for Edmonton’s industrial sector, 2017 could be a barn-burner.
The biggest transaction of the quarter, and arguably the entire year, was the acquisition of the Artis portfolio by Pure Industrial Real Estate Trust, which consisted of eight industrial properties throughout the province, including a half-dozen in Edmonton.
According to Colliers International’s most recent report on the city’s industrial market, there remains a gap between vendor and purchaser expectations when buying investment properties, but as the market begins to stabilize, the gap is narrowing.
“Progressing forward into 2017, we can expect to see an increase in investment sales transactions,” Colliers said.
Optimism is also growing because the oil and gas sector, which is strongly correlated to Edmonton’s industrial market, is showing signs of recovery.
There were also 977,400 square feet of industrial space under construction in the quarter, up from 693,000 during the previous three-month period.
Edmonton’s retail market is also looking up, thanks in part to the opening of Rogers Place, the new home to the NHL Oilers, last fall. The ICE District is a 25-acre mixed-use development in the downtown core, featuring 300,000 square feet of retail space surrounded by 1.3 million square feet of office space as well as residential.
The pick: industrial
It helps when the municipal government lends a hand as the North Commuter Parkway, which is scheduled to welcome its first vehicles in the fall of 2018, will bring more traffic by the Marquis Industrial and North Industrial areas.
According to a recent research report from ICR’s Saskatchewan Edge, there are a number of subleasing opportunities in industrial, though landlords are largely staying at a face value of $12 per square foot in asking lease rates.
With a number of new neighbourhoods in various stages of development, ICR said there is money to be made on the retail side, too, particularly if the recent experience of new retailers in these burgeoning neighbourhoods is any indication.
“This new inventory has been met with high demand,” he said.
The pick: all sectors
Manitoba’s economy has long been praised for its diversity and the same principles apply to Winnipeg’s real estate market.
It doesn’t matter if you’re looking at retail, commercial, industrial or multi-family, there are plenty of projects pending that have the potential to turn a tidy profit.
No individual building is going to go to the moon profit-wise, but that’s not the way things work in the Manitoba capital.
With political chaos south of the border, North American investors are increasingly looking at Canada, but prices in cities such as Toronto and Vancouver have got to the point where some people can’t play the game, says John Pearson, a commercial real estate broker/developer with Shindico.
With the $400-million True North Square coming out of the ground downtown, the offshoots across all sectors should be plentiful, particularly with new condominium projects being announced on a regular basis.
“Winnipeg’s market is stable, predictable and hasn’t been hit by the oil downturn like Saskatoon and Calgary have. Plus, we have a strong agri-cultural base and plenty of diversification,” he said.
Investors will also appreciate the fact that Winnipeg is home to companies such as Great-West Lifeco, Investors Group and James Richardson International, plus a deep base of arts and sports communities.