Optimistic caution
Forecast season is beginning, and in a telling shift from last year there's greater skepticism that everything proposed will come to pass (at least in the near term). Times are good, the money's flowing, but cautious hands hold the reins.
Case in point: While moderating NAIOP's commercial real estate outlook panel in September 2011, CBRE Ltd. executive vice-president Tony Quattrin challenged the doubts of Andrew Tong, senior vice-president, investments, for Concert Properties Ltd., that every office tower then proposed for downtown Vancouver would proceed.
"Pretty healthy is an understatement right now," Quattrin said last year, pointing to a 1.6% vacancy rate in triple-A office space in the core.
Today, the vacancy rate for triple-A space sits at a record low of 0.7%, but at the latest NAIOP breakfast discussing the investment market, Avison Young principal Bob Levine bluntly restated Tong's opinion of last year regarding proposed office towers: "They're certainly not all going to be built."
With estimates putting the volume of proposed office construction in Metro Vancouver at eight million square feet, and annual absorption over the past six years averaging 150,000 square feet, Levine pointed out that there's several decades worth of supply on the books.
Quattrin didn't push back. Just in from Europe, he said Canada looks good when compared with the international situation no matter what happens.
"We look really good – we've got transparent government, we've got safe laws, we've got fundamentally good real estate," he said. "Everybody wants to invest here; the only reason they haven't is because the Canadians have been outbidding them."
Quattrin pointed to the sales earlier this year of Bentall 5 in Vancouver and Scotia Plaza in Toronto as examples of Canada's clout in investment markets. Between them, the properties had billions worth of capital pursuing them.
Flat-lining
Residential real estate did well in 2012's first half, and even the first phase of the Station Square redevelopment in Burnaby sold out in a single day on October 20, but forecasters are increasingly saying residential markets are due for a pause.
And that's not a bad thing.
"It's been so good for so long; I think it's good to have a breather from time to time," Avison Young's Bob Levine told a NAIOP audience a couple of days before the Station Square sale. The official outlook from the BC Real Estate Association expects activity in 2013 to fall below the long-term averages. Chief economist Cameron Muir has predicted that house prices will be "flat, with a slight downward bias."
Speaking during a round-table discussion with media last week, Muir said he doesn't see any triggers on the horizon for a major price correction or a halt to housing starts.
He expects provincewide sales volumes to be below the 15-year average of approximately 80,000, checking in at 74,900 units next year (up from an expected 69,200 units this year). Some activity will be spurred by lower prices, which Muir expects to end 2012 at $734,000 in Vancouver and average $720,000 in 2013.
Provincially, resale prices will average $518,600 this year and rise to $522,000 in 2013.
The key issue will be affordability and amenities. Projects that can deliver these will win, as the recent success of Station Square indicates.
MC2, Intracorp's project at Marine and Cambie, will be another test case.
Michael Ferreira of Urban Analytics recently told the Urban Development Institute that Rennie Marketing Systems has racked up more than 7,000 registrants via a low-key campaign. Between 85% and 90% of the project's units are expected to be sold within a week of release.
Westin sale pending
While residential sales might be poised for a slowdown in 2013, that hasn't stopped interest in land acquisitions for future development. Speakers at the recent Western Canadian Hotel and Resort Investment Conference heard that under performing hotel properties are hot prospects for redevelopment as residential.
Indeed, two or three serious bids from Vancouver developers are reputed to have been among the parties vying for the Westin Bayshore Resort and Marina, which is part of the five- property Westin portfolio.
A deal for the properties went firm late this past summer, said Avison Young's Bob Levine at the recent NAIOP meeting; however, the Vancouver developers' bids failed – but not for lack of trying.
"The only reason they didn't get it was because they weren't buying the whole chain," Levine said. •
