Blockbusting billions
The much-heralded tsunami of capital landed in a big way during the first half of 2016.
Avison Young, which tracks investment deals worth $5 million and more, reports B.C.’s biggest deal volume of any year in the first six months of 2016. You read that right – aggregate deal values across B.C. trumped those of any previous year in just six months, putting 2016 on track to be an investment blockbuster.
All told, Avison Young reports 67 transactions worth $2.78 billion in 2016’s first half, more than triple the $879 million in property that changed hands in 66 transactions during the same period last year.
With investment activity typically picking up during the second half of the year, the province is set for a benchmark year even if just a $1 billion worth of deals occurs between July and December.
The historical trend suggests a more likely estimate of at least $2 billion, putting the province on track for $5 billion worth of transactions in 2016.
Tallying deals worth more than $1 million, as Altus Group does, the aggregate value is already approximately $6.5 billion for the first half of the year – and that’s just in Greater Vancouver.
“Select asset classes are driving the overall market metrics into new territory,” opined Paul Richter, director, commercial research at Altus Group in reporting the first-quarter stats.
With a diversity of assets trading at a range of prices, Richter anticipates the momentum continuing so long as the diversity – and the cash to take advantage of it – remains.
Avison Young’s outlook is more conservative.
“Dollar volume is expected to decline to more historical levels in the second half of 2016 while deal velocity is anticipated to slow as potential purchasers recalibrate what they are willing [and able] to pay in a market that continues to have significant constraints on supply and new development, but seemingly not price,” its review of the market concludes.
Untarnished brand
The big question, of course, is what happens when the tsunami of cash retreats? Will locals feel washed up?
Speakers at an Urban Development Institute roundtable convened to discuss the impact of the 15% residential property transfer tax laid on foreign nationals were near unanimous in pointing to the current cycle ending with a recession.
Tom Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate, didn’t deem it the most likely outcome, but fellow centre director Tsur Somerville cautioned on the impact of the tax on real estate development and, in turn, jobs.
Helmut Pastrick, chief economist with Central 1 Credit Union, was uncertain as to timing but certain regarding the current cycle’s end in recession: “it will come to an end, as all cycles do, and it probably will be a rather nasty outcome.”
But as other speakers have mentioned in the past, don’t count on Chinese capital stopping.
“The Chinese are not going to stop coming in here. This is their No. 1 hive right here,” said builder Nat Bosa the previous day in discussion with Rob Macdonald at commercial real estate association NAIOP.
“I think it’s going to significantly tarnish our brand,” Macdonald countered, dissing both the province’s move and the city’s proposed tax on vacant homes.
“No,” Bosa snapped back. “No. You’re not going to tarnish Vancouver. Vancouver is Vancouver.”
Staunching the flow
Data from the Office of the Superintendent of Bankruptcy Canada holds good news for contractors.
Bankruptcies in B.C.’s construction sector peaked in 1995 at 264. Since 2008, however, they’ve dropped markedly. There are now fewer than 100 bankruptcies in the sector each year, and even better, the most recent five-year average has been just 38.
The news is less positive for real estate and leasing companies, which saw bankruptcies cruise at record lows between 2006 and 2012.
Unfortunately, the tide has since turned and bankruptcies among real estate and leasing companies doubled from seven to 14 in 2013, a tally reached once against last year. •
