Vancouver commercial real estate market update – Q4 2023

To read the latest Vancouver Commercial Real Estate Market Update, click here.

Total investment volume in Vancouver dropped by nearly half amidst continued economic uncertainty

High interest rates and inflationary pressures weighed down on investment transaction activity in Vancouver as investors entered a price discovery phase (bid-ask expectations between buyers and sellers) amidst economic uncertainty. Securing financing was also a challenge in 2023 and, to this effect, the market reported $8.4 billion in dollar volume in 2023, a 48% decrease year-over-year (YoY). Despite macroeconomic factors, investors remained cautiously optimistic. According to Altus Group’s most recent Canadian Investment Trends Survey, Vancouver was the most preferred market by investors in the fourth quarter of 2023, followed by Toronto and Ottawa, respectively.

Figure 1 - Property transactions – All sectors by year

The industrial sector reported $2.6 billion in dollar volume transacted, a minimal decrease of 4% YoY. Investment activity slowed in response to elevated interest rates, inflationary pressures, labour shortages, higher rental rates, and increased construction and material costs, which further constrained markets across Canada. Furthermore, as the growth of e-commerce accelerated the demand for modern distribution and warehousing, shortages in Vancouver’s industrial have led investors to seek opportunities in the Calgary market. Vancouver’s industrial availability rate increased by 1.3% to 3.1%, as reported in Altus Group’s most recent Canadian industrial market update. There is 633,546 square feet of new supply, of which 77% is pre-leased. In addition, 3.5 million square feet of new construction is under construction, of which 61% is pre-leased.

Vancouver’s office sector posted $579 million, a 36% decrease YoY. According to Altus Group’s most recent Canadian office market update, Vancouver’s office availability rate has increased by 0.2 to 12.2%, reflecting a flattening trend. The market saw approximately 608,769 square feet of new supply, with 78% pre-leased. Most notably, two Class-A office buildings, The Post and B6, were added to Vancouver’s downtown core. Moreover, nearly 4.1 million square feet of office space is under construction, with almost half already committed.

The retail sector reported $968 million in dollar volume transacted, a 49% decrease YoY. Despite the economic headwinds, Vancouver remained a tight market as land constraints limited the construction of new retail space. However, a few large retail redevelopment projects have been slated for the future; most notably, Phase 2 of Amazing Brentwood, Lougheed Town Centre, and Oakridge Centre. Moreover, Altus Group’s most recent Canadian Investment Trends Survey revealed that Vancouver’s second-ranked property type is food-anchored retail strips. This retail type has been favoured across Canada as changes in consumer behaviour have made it a resilient asset amid economic uncertainty.

The multi-family sector reported $768 million in dollar volume transacted, a 53% decrease YoY. Altus Group’s most recent Canadian Investment Trends Survey identified suburban multiple-unit residential as Vancouver’s top preferred property type. However, in 2023, Vancouver’s severe shortage of rental housing has been exacerbated by interest rate hikes, population growth, land constraints, strict land-use policies, long approval times, and the bid-ask-gap between buyers and sellers.

Investment in residential and ICI land has declined from the levels observed in 2022 and 2021, given the current economic conditions and surge in land prices, with $3.3 billion in dollar volume transacted, a 62% decrease YoY. The residential land sector posted $1.9 billion transacted, while the ICI land posted $1.5 billion , a 66% decrease and a 55% decrease YoY, respectively.

Property transactions by asset class (2022 vs. 2023)

Notable transactions for Q4 2023:

The following are the notable transactions for the Q4 2023 Vancouver commercial real estate market update:

1527 Main Street – Residential Land

Greystar Development purchased the property from McDonald’s Restaurants of Canada for $80 million. Greystar Development has indicated plans to build a purpose-built rental mixed-use development on the property that is situated in the Southeast False Creek development area. The vendor has entered into a leaseback with McDonald’s restaurant until construction on the new development begins.

Strawberry Hill Shopping Centre - Retail

Strawberry Hill Shopping Centre, located at 12101 72nd Avenue and 7350 120th Street, was acquired by a private investor via a share sale for a total consideration of $155 million. Following the ongoing trend of shopping centre redevelopment to include high-density residential units, the 10.28-acre site was marketed as a potential future redevelopment site with holding income from national and local tenants.

3805 – 3919 Nanaimo Street – Residential Land

Coromandel Properties sold the 0.982-acre site to the BC Transportation Authority via a court-ordered sale for a total consideration of $22.5 million. Coromandel Properties filed for creditor protection in February 2023, which they exited approximately a month later. The site, located just north of the Nanaimo SkyTrain station, is the second sale of Coromandel’s sites since exiting creditors protection.

Figure 3 - OCR trends across 4 benchmark asset classes

In 2023, a nationwide slowdown in investment activity was observed due to higher interest rates and inflationary pressures. Across Vancouver, investors exhibited purchasing motivations similar to those of the previous year. Industrial and multi-family assets accounted for most of the investment dollar volume as these asset classes continued to be supported by strong underlying demographic and economic fundamentals. Looking ahead, with the anticipated interest rate cuts in the second half of 2024, investors have remained optimistic for a potential rebound.

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