As interest rates continue to push upwards and with another increase upon us come September this one market has continued to see growth and increasing pricing. This week from the William Wright Commercial Victoria Office; Cory and Adam welcome Harry Jones to discuss the Greater Victoria market that just doesn’t slow down regardless of market conditions.
Harry walks us through all the asset classes and how they have performed over the past year and what is to come as interest rates continue to rise. Harry also gives us some insight and where he is investing his hard-earned money and why. There are not too many surprises here if you are a consistent listener of the podcast.
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Who is Harry Jones?
I’ve been with William Wright Victoria for three years and was previously playing rugby with Canada’s national team, playing in the Olympics. I worked as a commercial appraiser as well.
What’s happening in the Victoria commercial real estate market?
The word is out about Victoria and covid has expedited that. Victoria isn’t rural, but it does allow people to enjoy life a bit more and live in a beautiful area. A lot of trades have noticed this shift so we’ve seen a lot of activity in commercial real estate in Victoria in recent years.
We are currently experiencing higher interest rates, which usually means a slowdown or plateau for the real estate market. But Victoria real estate is continuing to trend upwards. Why?
Victoria, like Vancouver, is landlocked. A lot of developers know this and want to deploy their money here. There’s a lot of money on the sidelines that people are excited to put to work in Victoria. We’ve been very busy over the summer and just trying to keep our head above water.
Victoria has the lowest vacancy rate in industrial real estate in North America and one of the highest industrial lease rates in Canada. Why Victoria?
There’s a large amount of pent up demand for industrial real estate and not a lot of construction in recent years, but that’s starting to change. We’re starting to see more construction happening. So that will relieve some of the stress. But the demand continues to go up, so the price per foot goes up as well.
With new construction industrial real estate, is the price per foot going up? Are people still buying?
Yes. We had industrial presale strata prices around the low to mid 300s, but that has now escalated over $500/square foot. With interest rates increasing, it doesn’t make as much sense for investors. So we are seeing more owner-occupiers buying industrial right now. That might shift in the medium-term. But there is still that pent up demand.
On the leasing side, everything gets swept up right away. There’s just so much demand.
Who is buying in Victoria?
We’re seeing a lot of out-of-town investors. Especially when prices are over $700/square foot in Vancouver, or $20/square foot to lease, it makes sense for people to buy in Victoria where they can save some money. But as the demand increases in Victoria, the prices go up too. We’re now looking at lease rates of $19/square foot, which is very similar to Vancouver.
How is the retail sector of the Victoria real estate market?
Retail has come back through covid. A lot of tenants and smaller businesses struggled, especially with the lack of tourists. But the streets of Victoria are busy again and tenants are bullish. They’re not as impacted by interest rates or even construction costs.
For investors, there’s a strong demand for retail strata but not a lot of supply. It gets scooped up very quickly and you can’t build for the same price you could a year ago. We are seeing days on market increase with the high interest rates, but our phones are still ringing. People are anticipating the bottom of the dip and looking for opportunities.
What asset class are you most excited about?
I’m bullish on the new industrial real estate we have coming up, as well as land. We’re in a small speed bump right now but the fact is there is not a lot of land and a lot of people want to live here. If you head to Nanaimo or mid-island, there are more opportunities.
Should investors be buying in Victoria right now?
It’s a great time to be ready to jump on real estate opportunities in Victoria. Some owners may get pushed out of the market based on refinancing, which could result in good buys.
I think some people are going to wait on the sidelines too long trying to time the dip and miss opportunities right in front of them. Long term, Victoria and Vancouver Island is a great market to get into.
How is the office market in Victoria?
There was increased vacancy through covid, obviously, but that has come back. A lot of turn key spaces get scooped up quickly and we’re seeing strong demand. The strata office play is strong and will be into the future. Owner-occupiers want to own their own spaces and pay off their mortgage, instead of someone else’s.
What area and asset classes are you excited about?
For strata office, I think there will be a great opportunity in the upcoming business parks in the South Island area. Retail will also remain quite strong and I think there will be more industrial opportunities soon.
What is happening with the Nanaimo real estate market?
There’s a lot of interest and institutional money coming into Nanaimo. A lot of mixed-use buildings are getting scooped up quite quickly. They’re trying to bring back the vibrancy in the area and attract more tourists. I think South Nanaimo will be a great place for industrial opportunities based on the infrastructure updates happening there.
How has Victoria changed in the last few years?
We’re seeing a shift in age demographics in Victoria for sure. Through covid, a lot of people were able to work remotely and live where they wanted to. More residents means a busier commercial real estate market. Victoria is a beautiful place to live and we’re constrained on all sides. Those factors will result in more strength in the market going forward.
How is the multi-family market in Victoria for investors?
Over the last few years, the multi-family market in Victoria has been quite busy. We’ve seen suppressed cap rates and multiple offers on most properties. With interest rates increasing, we’ve seen properties stay on the market a bit longer and cap rates creep up a little bit. That shows that there are opportunities here. The long term outlook is very bullish. Groups that capitalize on this and time it right will do well in the long term.
What advice do you have for real estate investors?
It never hurts to look and it never hurts to be prepared. If a good opportunity comes up and you don’t have your ducks in a row, you won’t be able to jump on it.
What would you buy on Vancouver Island?
I would take a two-pronged approach: in the South Island area I would look at multi-family and then in the Nanaimo area, I would look at industrial real estate. Industrial real estate in the Greater Victoria area is also very strong right now.