Vancouver commercial real estate market update - Q3 2022

Investors’ concerns around rising inflation and interest rate hikes were finally made manifest in the third quarter of 2022 with overall investment volume in the Vancouver market plunging to $2.29 billion. This represents a 38% drop in quarterly dollar volume from a year earlier.

Altus Group’s most recent Vancouver commercial real estate market update found that the notable slowing in sales activity in the third quarter has dimmed the strong first half of 2022 (up 27% from the first half of 2021) such that the overall dollar volume of $11.5 billion in the first nine months of 2022 is now just 5% ahead of the same period in 2021.

While the results of a single quarter do not make a trend, investors in Vancouver’s commercial real estate certainly embraced a pens-down approach to start the back half of 2022.

Land continued to dominate investment dollar volume in Vancouver over the first nine months of 2022 with $6.3 billion in sales. The majority of which was spent acquiring residential land ($3.9 billion) as well as ICI land ($2.4 billion). While ICI land dollar volume in the first half of 2022 had been up 37% compared with the pace set during the same period of 2021, that investment total slipped to just 8% by the close of the third quarter. Investment volume for residential land, which had been up an astonishing 149% in the first half of 2022 compared with the same period the year previous, had fallen to 69% by the end of September 2022.

Industrial assets remained popular with investors in the first nine months of 2022, with more than $2 billion in sales. This was slightly surpassing the $1.9 billion in proceeds from the same period in 2021. The investment totaled just 4% ahead of where it was a year earlier - nine months into 2022, falling from 26% ahead at mid-year 2022.

A resurgence in retail asset sales pushed total sales to $1.4 billion through the end of the third quarter in 2022. This marked an improvement on the $1.2 billion invested in the same period of 2021, but was still just 14% ahead of the where retail sales were last year after nine months, down from 47% at mid-year 2022.

Apartment sales, while still posting more than $1 billion in proceeds in the first nine months of 2022, dropped 53% from the more than $2 billion in dollar volume registered in the same time period in 2021. This decline occurred not because demand for the asset class had diminished, but could also be the result of investors holding onto multi-family residential assets due to rising immigration levels and the asset class continuing to provide stable returns in a volatile environment.

Office investment stumbled year-over-year during the first nine months of 2022, slipping to $717 million from the $1 billion in sales recorded through the first three quarters of 2021.

According to Altus Group’s Investment Trends Survey, overall capitalization rates in the Vancouver market increased in all asset classes in the third quarter of 2022, when compared with the second quarter of the year and have been on the rise since year-end 2021. Investors continued to view both tier I regional mall assets (4.6% cap rate average) and downtown class AA office (4.4% cap rate average) with some caution, while single-tenant industrial (3.9% cap rate average) and suburban multiple-unit residential (3.8% cap rate average) remained the asset classes with the lowest cap rates in an environment of upward pressure.

The Vancouver market was tied with Toronto as investors’ most preferred market for CRE investment in Canada in the third quarter of 2022 followed by Ottawa and Montreal, which were both tied for third.

Notable Q3 2022 transactions

The following are the notable transactions for Q3 2022’s Vancouver commercial real estate market update:

Coronation Park, Port Moody – Residential Land

This 14.8-acre land assembly for Wesgroup involved nearly 60 residential properties and has been in the works for years, but finally concluded in September 2022 with a total value of $158.2 million. Wesgroup is seeking to have the newly assembled site rezoned to allow for the development of a mixed-use master-planned development, which would include six high-rise towers ranging between 26 to 31 storeys and low to mid-rise buildings. The development would contain an estimated 2,587 units, including approximately 100 purpose-built rental units, indoor amenity space, retail and office space, as well as a public park and civic facility.

26575, 26601 and 26477 56th Avenue, 5670 264th Street, Langley – ICI Land

The Conwest Group acquired this 18.48-acre site in Langley for $43.22 million in July 2022. At the time of sale, the properties were each improved with one single-family detached dwelling and other farm-related buildings. A development proposal had been submitted to the Township of Langley and it seeks to have the properties rezoned as general industrial and included in the Gloucester Industrial Park Community Plan.

18825, 18843 and 18873 -16th Avenue, Surrey – ICI Land

The Beedie Group acquired this 14.94-acre site in Surrey for $34.92 million in September 2022. At the time of sale, the property was improved with three single-family detached dwellings. A development proposal was submitted to the City of Surrey regarding the properties located at 18825, 18843, 18861, 18885, 18919, 18937 and 18973 - 16th Avenue. The applicant has proposed to rezone the properties as well as to allow the consolidation of the seven lots into one that would permit construction of approximately 700,000 sq. ft. of light industrial space in multiple buildings.

506 West 27th Avenue; 4339, 4361 and 4387 Cambie Street, Vancouver – Residential Land

This 0.93-acre residential development site situated along the Cambie Corridor in Vancouver was sold to Aria Pacific Development for $34 million in August 2022. At the time of sale, the property was improved with four single-family detached dwellings. Applications regarding development of the property had not yet been submitted to the City of Vancouver.

8120, 8092 and 8056 Stave Lake Street, Mission – Residential Land

A numbered BC company acquired this 19.28-acre residential development site for $32.98 million in July 2022. At the time of sale, the properties were improved with two single-family detached dwellings. A development proposal had been submitted to the District of Mission. The applicant proposed to rezone and subdivide the properties into four parcels for townhouse development.

Investment activity in the Vancouver market had been on a record-setting pace through the first half of 2022, but the macroeconomic headwinds that have been building since the start of the year have finally impacted investor sentiment to such an extent that a significant drop in dollar volume in the third quarter was the result.

This reduced level of activity is expected to continue to impact most asset classes and persist through the fourth quarter. This will likely result in overall dollar volume in 2022 not surpassing the record level of investment in the Vancouver market set in 2021, but the year will still remain one of the strongest in terms of overall dollar volume recorded in recent history.

View the Vancouver CRE market update for Q2 2022