Vancouver commercial real estate market update – Q3 2024

Investment activity in the Vancouver market saw an increase of 21% year-over-year

After a strong second quarter was observed as investors hurried to close deals ahead of the federal capital gains tax increase on June 25th, 2024, investment activity for most sectors eased in the third quarter. The Vancouver market recorded $7.2 billion in dollar volume transacted year-to-date, an increase of 21% year-over-year (YoY). However, investment activity slumped in the third quarter with only 1.6 billion in dollar volume transacted, a 58% decrease compared to the second quarter, as investors returned to the sidelines for more attractive financing rates.

Despite the slow rebound, investors remained confident in the market for its strong demographic and economic fundamentals. According to Altus Group’s most recent Canadian CRE Investment Trends Survey, Vancouver jumped from second to first place as the most preferred market by investors.

Figure 1 - Property transactions – All sectors by year

The industrial sector reported nearly $1.6 billion in dollar volume transacted, a decrease of 9% YoY. Altus Group’s latest Canadian industrial market update revealed that Vancouver’s industrial availability rate increased by 210 basis points to 5.1% YoY, the highest availability rate observed since Q2 2015 due to the build-up of inventory, which has led to three consecutive quarters of negative absorption. Vancouver recorded 538,047 square feet of new completions, with 88% pre-leased. In addition, the market has nearly 4.6 million square feet of industrial space under construction, with over 50% pre-leased. Despite the slowdown in investment activity, the long-term outlook for the industrial sector remains positive, as Vancouver continues to be a vital trade hub for Canada.

Vancouver has continued to grapple with challenges associated with the limited supply of land (residential land and ICI land), which has resulted in extremely low availability rates, increased land prices and construction costs, and higher development cost charges. The land sector posted $3.3 billion in dollar volume transacted, a 24% increase YoY. However, investment activity in the third quarter waned, with only $855 million in dollar volume transacted, a 51% decrease compared to the second quarter, as investment volume remained below historical averages. The ICI land sector recorded $1.8 billion in dollar volume transacted, a 45% increase YoY. Meanwhile, the residential land sector recorded $1.5 billion in dollar volume transacted, a 5% increase YoY.

The multi-family sector recorded $967 million in dollar volume transacted, a 75% increase YoY. The long-term outlook remained positive, as strong population growth has continued to sustain rental demand and outpace available supply. Moreover, as inflation has returned to the two-percent target, the Bank of Canada is forecasted to continue cutting interest rates. Although these cuts have not translated into any significant uptick in multi-family investment activity, investment volumes are expected to increase in response to more favourable financing conditions in 2025.

The office sector posted $566 million in dollar volume, a 14% increase YoY. The sales of several high-profile office buildings in downtown Vancouver in the second quarter has contributed to an unanticipated boost in the office sector’s year-to-date investment volume. As the flight-to-quality trend persists, leasing activity continues to skew towards premium Class-A office buildings, which has increased competition across the Class-A market while outdated Class-B and -C buildings are at risk of functional obsolescence.

According to Altus Group’s most recent Canadian office market update, Vancouver’s office availability rate has increased 130 basis points to 13.4%, the highest recorded availability rate in two decades. Moreover, the market completed six office buildings in the third quarter, totalling 659,443 square feet, with 39% pre-leased. In addition, 2.1 million square feet of office space was under construction in the third quarter, with 72% pre-leased.

The retail sector reported $851 million in dollar volume transacted, a 57% increase YoY. According to Altus Group’s most recent Canadian Investment Trends Survey, Vancouver’s first-ranked property type was food-anchored retail strips, which continued to be preferred for its low-risk, stability as consumers focused their spending on essential goods and services. Vancouver’s retail sector remained resilient with several shopping centre redevelopment and mixed-use development projects unveiled earlier this year and slated for completion in the future (e.g., The Post, Oakridge Park, Everything RC at CF Richmond Centre, Concord Metrotown, etc.).

Figure 2 - Property transactions by asset class YTD (Q3 2023 vs. Q3 2024)

Notable Q3 2024 transactions

The following are the notable transactions for the Q3 2024 Vancouver commercial real estate market update:

388 Slocan Street, Vancouver (YWCA Sandy So Vista) – Apartment

Supported by BC Housing and in partnership with the Young Women’s Christian Association (YWCA), this $55 million, six-story affordable housing building on East Hastings Street was acquired and began welcoming residents in August 2024. The YWCA will manage operations for all 70 homes, retaining ownership of 36 units and the commercial space, while BC Housing will maintain ownership of the remaining 34 units. The building includes 14 units with rents geared to income, prioritizing single women and single mothers with children. The building also has 56 units available to the public at below-market rates with unit sizes starting at 313 square feet and rents beginning at $1,758 per month. Part of the B.C. government’s $19-billion housing investment initiative, the project represents a step toward increasing the availability of affordable housing in the region.

22940 48th Avenue, Township of Langley – ICI Land

In September 2024, Grace Hanin Community Church purchased a 10.17-acre vacant lot in the Township of Langley for $26 million. The acquisition follows the church's sale of its location at 9770 King George Boulevard to UBC Properties Trust for $70 million in November 2021. Grace Hanin Community Church plans to build a new church on the site, which is situated along the same street as other key institutions, including Langley Christian School, Langley Christian Middle & High School, and SouthRidge Fellowship Church. Currently zoned RU-1 (Rural Zone), a development application submitted in May 2023 seeks to reclassify the property under the Murrayville Community Plan, from its current designation in the Rural Community Plan.

3362-3384 Vanness Avenue, Vancouver – Residential Land

Intracorp Homes acquired this 0.778-acre parcel of land directly across from the Joyce-Collingwood SkyTrain Station for $41 million. The property is currently improved with a 12-storey apartment building and a three-storey townhouse building. This acquisition is part of an assembly that includes 3347 Clive Avenue which was acquired in August 2023. The developer has submitted a proposal to the City of Vancouver for a purpose-built rental development featuring two 30- & 33-storey towers over a five-storey mixed-use podium. The project will provide 679 below-market and secure market rental units, alongside commercial space and a childcare facility, enhancing the community's amenities and addressing local housing needs.

537, 541, 545, 549, 553 & 559 Appian Way and 542 & 548 Perth Avenue, Coquitlam - Residential Land

In the third quarter, Anthem Properties acquired eight residential lots totalling 2.4 acres for nearly $37 million. These lots are part of a broader project involving the rezoning and redevelopment of 11 properties in Coquitlam. Anthem completed the land assembly with additional acquisitions in August and October 2024. Anthem has proposed to rezone the properties from RS-1 (Single Family Residential) to RM-3 (Medium Density Apartment Residential), paving the way for the construction of three six-storey wood frame market rental apartment buildings. Designed with the community’s needs in mind, the development will also include two levels of underground parking, ensuring sufficient infrastructure to support future residents. This project aligns with Coquitlam's vision for high-density, transit-oriented growth, contributing to the city's efforts to create more livable and accessible neighbourhoods while addressing the increasing demand for rental housing.

Figure 3 - OCR trends across 4 benchmark asset classes

Conclusion

Investors have continued to covet land (residential and ICI land) and industrial assets in the Vancouver market, as these sectors comprised 45.5% (20.3% and 25.2%) and 21.5% of the total investment volume as of the third quarter year-to-date. Despite the BoC’s decision to cut the overnight interest rate to 4.50% on July 24th, it has not contributed to any meaningful boost in investment volume in the third quarter. It is predicted that activity is not expected to pick-up until sometime in 2025 as investors are holding off for consecutive cuts as price pressures persist.

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