The CoStar Canada Market Analytics Team recently released its January newsletter update focused on Vancouver. Check out the team's assessment of performance across all Vancouver market segments, and its forecast for the days and months ahead, below.
With a new decade upon us, British Columbia (BC) is hoping that the New Year will bring greater opportunities for the province as GDP is forecasted to grow by 2.1% in 2020, down from the projected 2.5% in 2019. To help British Columbians with rising debt levels and higher costs of living in 2020, the NDP government plans to eliminate Medical Services Plan (MSP) premiums, which the province considers the largest middle-class tax cut in BC history. Families can expect to save as much as $1,800 per year, which will hopefully translate into increased consumer spending as retail sales in Metro Vancouver have declined sharply, down 2.4% in October compared to the same time in 2018. The federal government is also increasing the basic personal tax credit by $1,000 to $13,229 in 2020, and by the end of 2023 that amount is expected to increase to $15,000, saving the average Canadian approximately $300 per year. Unfortunately, some of those funds will be taken back in the form of increased federal carbon levies, expected to increase prices at the pump by an additional one cent per litre.
One concerning trend since the first half of 2019 has been slowing sales in the residential housing market. Although, sales activity picked up drastically in the second half of 2019, benchmark prices dropped by 3.8% for single family homes while condo prices dropped by 1.1% in 2019. Moreover, BC Assessment released assessed property values this month, and home owners across the Lower Mainland can expect to see their property values drop by up to 15% on average. Interestingly, office and retail properties across the region saw a larger spread with these type of properties expected to see values change between -15% and +20%. The strongest performer according to BC Assessment was the industrial sector, with properties expected to see assessed values change between -5% and +20%.
The office sector will start off the New Year knowing that it secured one of the largest office lease transaction across Canada in 2019 with Amazon securing all of the 1.13 million square feet of office space within The Post redevelopment. Office rental growth has seemed to have cooled in 2019 increasing by 2.9% over the year, however with much of the existing space already leased, there are not that many available spaces to drive up rents. With pre-leasing activity representing much of the leasing action over the past year, the next wave of proposed developments is already in the works. Specifically, there are 23 office projects in the pipeline across Metro Vancouver, of which 11 of them are expected to bring over 100,000 square feet of office space to market with 10 of them actually being located outside of the downtown core.
Industrial rents in Metro Vancouver grew by 8.8% over 2019, reaching $12.75 per square foot. Although this rent growth was impressive, it was slightly lower than industrial rental growth in Toronto which topped 12.9%. Much of the growth in Metro Vancouver was attributed to the continued demand for logistics and distribution space where rents grew by 10.7% in 2019. The industrial market will remain tight throughout 2020 as the overall availability rate in Metro Vancouver is only 100 basis points higher than its vacancy rate of 1.8%, indicating a competitive market.
Retail vacancy stands at a mere 1.4%, and although retail sales are down as of October, consumer spending is expected to pick up in 2020, growing by 2.1% in Metro Vancouver. One potential reason for the decline in retail sales could be due to the fact of the wide disparity in the dynamics of the retail sector. Today, we are seeing more focus on luxury retail or discount stores with many retailers in the middle continuing to close their doors. For the most part, luxury and premium retailers have been quick to fill vacant spaces that were left by those who were unable to compete in today’s market.
With the cost of living continuing to increase and Vancouverites looking to make their dollars go farther, the resale apparel market has become one of the fastest-growing segments in the retail industry, primarily driven by e-commerce based fashion resellers such as Montreal’s LXRandCo and Calgary’s Upside. Today, the largest channels for resale apparel still involve brick and mortar stores like Vancouver’s own Turnabout. The chain has grown from a single shop on South Granville to seven stores around the city, selling an array of luxury brands on consignment. It is estimated that 85% of Canadians participated in the second-hand economy in 2018 and with technology bringing us closer together it will only be a matter of time when this segment of the retail sector will become a driving force in retail sales while also fueling further demand for physical retail space.
These insights are made possible through CoStar, the largest commercial real estate source for property listings for sale or lease in Canada. CoStar enables users to gain insight into over 26,045 properties currently tracked in the Greater Vancouver Area, which include 1,029 properties for sale and 2,723 spaces for lease.
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