Metro Vancouver’s residential real estate market may be going through a period of decline that has seen house sales reach their lowest level in 18 years in 2018, but has this decline transferred over to the commercial real estate in Vancouver, too?
Historically in sync
Historically speaking, residential and commercial real estate in Vancouver have been linked throughout their ups and downs. From 2005 to 2014, each real estate market showed a six percent compound annual growth rate, following the same pattern – with only a few conversing fluctuations along the way.
This pattern would suggest that through the recent residential real estate decline, the commercial market would have too felt the impact. However, this time, commercial values in retail, office, and industrial are holding firm while home prices have been falling since the beginning of 2018.
Single-family homes and commercial properties are competing for land, so why is that the decline in residential prices and land values, didn’t bring down commercial property prices to the same degree this time?
Vancouver commercial real estate
One reason for the disparity is that commercial property prices in Vancouver did not soar to the same extent as residential between 2014 and 2017. Fierce interest from overseas buyers for residential assets in Vancouver through this period saw single-family home prices grow at an incredible rate.
Single-family homes in Vancouver grew at a 17 percent compound annual growth rate in this period. This was compared with Real Capital Analytics’s custom commercial property price indicator that showed an 11 percent annual increase in all of B.C.
But when B.C. introduced a 15 percent foreign buyers’ tax for Vancouver, which has since been increased to 20 percent the new regulations slowed down the price growth of residential real estate. Subsequently, from January 2018 to May 2019, Vancouver’s single-family price index fell 14 percent.
Over the same time frame, commercial property prices for B.C. have climbed a cumulative seven percent. Vancouver’s economy is also becoming more diverse and low-interest rates should continue to stoke commercial investment.
Vancouver’s current commercial market
Office-based employment is predicted to grow by 9.3 percent in 2019, placing extra strain on the office market in Metro Vancouver. Vacancy rates in the city reduced to 3 percent in July.
The international and luxury brands entering Metro Vancouver has also seen demand for retail space increase, with vacancy rates down to a record low of 1.3 percent at the end of July 2019.
Finally, industrial vacancy rates sat at just 1.6 percent at the end of July 2019. To deal with the low industrial vacancy rates, Greater Vancouver developers are building and planning for more strata industrial projects than ever before – with more than half of the buildings are getting built in Surrey and Richmond.