Vancouver commercial real estate market update

Commercial real estate investors’ confidence in the Vancouver market remained largely intact through 2022 despite a notable decline in deal and dollar volume in the back half of the year, with an annual investment total of $15.7 billion. This total marked a 3.6% decrease from 2021 and represented a 14.8% decline from the record amount invested in 2017.

Heightened concerns around inflation and rising interest rates triggered an increase in the cost of capital, which served to substantially dampen investor sentiment, particularly in the back half of 2022 when investment in the Vancouver area market fell an astonishing 46% compared with the first half of 2022 and down 39% from the last six months of 2021.

According to the results from Altus Group’s most recent Investment Trends Survey, Vancouver was tied with Ottawa as the second most preferred market in Canada in which to invest following Toronto. Survey participants indicated the most preferred assets in the market were food-anchored retail strips, industrial land and multi-tenant industrial. Average cap rates increased across all asset types except for suburban multiple-family residential, which compressed to 3.6%.

The increase noted in the average cap rates for most other property types was in part a reflection of heightened caution among investors who scrutinized deals more closely under the harsh light of macroeconomic uncertainty and the ongoing impacts resulting from the shifts in where people live, work and shop emerging post-pandemic.

Total investment dollar volume in the Vancouver area for land (both residential and ICI) as well as industrial and retail assets in 2022 exceeded 2021 proceeds. Land sales dominated overall investment, comprising 54% of the total annual dollar volume. Residential land was responsible for the most dollar volume, generating $5.3 billion in proceeds in 2022, compared with $4.6 billion the year previous. ICI land generated $3.1 billion in sales in 2022, slightly less than the $3.2 billion recorded in 2021.

Investment in Vancouver area industrial assets achieved $2.8 billion in 2022, the third most dollar volume recorded in the year and comparatively stable when compared with the year previous. The slight increase in 2022 over 2021 marked the first notable slowing in the year-over-year growth of total annual industrial investment in the Vancouver area since 2019. However, with regional industrial vacancy continuing to be very low and rental rate appreciation still possible, demand among investors for industrial assets remained strong and new supply seriously constrained. Investor interest in acquiring retail assets continued to demonstrate resiliency in the face of adversity with $1.9 billion invested in 2022, slightly exceeding the total recorded in 2021.

The largest reversal of fortune in terms of investment volume in the Vancouver area occurred with multi-family residential assets, which produced total sale proceeds of $1.6 billion in 2022, a significant 38% decline from 2021. While demand for the asset class remained high, a combination of factors, including rising immigration levels, highly constrained supply along with nationwide housing affordability and availability issues, meant that asset owners were far less likely to execute on a disposition of an asset that offers stability in a time of volatility. Office investment slipped to $904 million in 2022 and marked the first time that annual office investment dollar volume in the Vancouver area fell to less than $1 billion since 2015.

Notable Q4 2022 transactions

The following are the notable transactions for the Vancouver commercial real estate market during Q4 2022.

Metro (Phase 2), Surrey – Apartment

These two six-storey wood frame apartment buildings, which contain 281 units, sold for $97.53 million. Located in Surrey, a fast-growing suburb of Vancouver - south of the Fraser River, Metro (phase 2) achieved per-unit pricing of $347,088. The transaction, which closed in December 2022, was the most expensive building sale in the Vancouver area recorded in the fourth quarter of 2022. Purchased by Centurion Apartment REIT, this apartment transaction was a principal contributor to the resurgence of investment dollar volume in the multi-family residential asset class in the back half of 2022.

10355 King George Boulevard & 10388 City Parkway, Surrey – Residential Land

The $108.5-million purchase of this 5.08-acre residential development site in Surrey in November 2022 was one of the most expensive property transactions in the Vancouver area in the fourth quarter of 2022. The purchaser, Wesgroup Properties, has proposed to rezone the property to allow for the development of 2,299 residential units, 76,359 square feet of commercial space, 321,895 square feet of office space, 66,672 square feet of civic amenity space and childcare space.

19469 & 19511 92nd Avenue, Surrey – ICI Land

The sale of this 14.2-acre industrial property for $111 million in October 2022 was one of the largest sales in the Vancouver area in the fourth quarter of 2022. Conwest Group acquired this property in Surrey with the expectation that the two industrial buildings and office building on site will be redeveloped into an industrial park.

4444 & 4488 Kingsway, Burnaby – Residential Land

One of the most expensive acquisitions of residential land in 2022 was the sale of 4444 & 4488 Kingsway in Burnaby. This 1.836-acre site was acquired by Keltic Canada Development for $145 million in November 2022. Prior to the sale, a rezoning application from the vendor, Bosa Properties, had been submitted to the City of Burnaby, which proposed to rezone the properties to allow for the development of two mixed-use mixed-tenure high-rise buildings above a low-rise commercial podium.  

With the acquisition of land and industrial assets comprising more than two-thirds of overall annual investment volume in the Vancouver area in 2022, similar purchasing motivations are expected to continue into 2023 even as new supply for these asset types remains limited and could hamper investment activity. With macroeconomic factors and ongoing shifts in work behaviours and consumption patterns likely to persist through 2023, demand for office and retail assets is anticipated to remain constrained to value-add investors confident in the asset classes. Supply constraints and vendor hesitancy are likely to continue to impede multi-family residential deal velocity.