Newly wed and nearly dead? Not anymore! With a burgeoning tech sector, thriving universities, and a growing Millennial population, Victoria has transformed into a hip and thriving city. Residential Realtor and Victoria developer Rick Hoogendoorn and top Commercial Broker and investment advisor Cory Wright sit down with Adam & Matt to detail the opportunities in both commercial and residential real estate. Is this current market the calm before the storm? Where and what are the best investment opportunities? And how does the Vancouver market inform what will happen next on the island? This isn’t your grandma’s Victoria!
About Rick Hoogendoorn:
Rick is a residential realtor with Greater Victoria Property Group in Victoria. He is also a real estate developer and author.
On the market in Victoria, BC:
People coming to Victoria from Vancouver normally think that the Victoria real estate market is the same as the Vancouver real estate market, but they are different. Victoria has not had the direct foreign buyer influence that Vancouver has. Victoria gets offshore buyers from Vancouver. Generally, foreign buyers are interested in Vancouver and this causes and overflow of Vancouverites to Victoria. Now, the foreign buyers have evaporated in Vancouver due to the foreign buyer’s tax and other factors, so this has stopped the flow of off-shore buyers to the Victoria market. The Victoria benchmark price hit a high last summer and has decreased approx 5% since that time – settling on an overall benchmark price of about $750,000. The Vancouver market is approx $650,0000 higher than the Victoria market in regards to the benchmark price.
On Victoria sales ratios and buyers:
Right now, the buyers are mostly from Victoria. The market is currently a seller’s market, approx 27-28% sales to listings ratio. It is not a crazy seller’s market like it was a couple of years ago when it was 85% of listings selling. There is still a shortage of inventory in Victoria because the city is at the end of the rainbow – where else is there to go.
On other exciting things happening in Victoria:
Victoria has been attracting millennials more and more. It has the 3rd largest tech sector in BC and this market is starting to eclipse the tourism market. The construction industry is also quite robust. There are lots of jobs in Victoria, but it is difficult to find rental housing.
On investments in Victoria:
When determining where to invest in Victoria, you should focus on the likely increases and the resources of the buyer. In the core city, the prices are high which has been pushing younger buyers to Colwood and Langford. The spread between the core of Victoria and the West Shore where these areas are located has increased over the last couple of years. There is a better bang for your buck in these areas, but you will face a long commute if you are still working in Victoria.
A house with a suite is still a great investment. It helps with affordability by adding about $200,000 to what a buyer can afford, but most single-family homes are over $1M. Condos in the core are still popular with an average price of $490,000. Victoria doesn’t provide great cash flow for investors like other markets like Edmonton and Calgary. There are 4 ways to make money in real estate: cash flow, capital appreciation, forced appreciation and mortgage paydown. Investors in Victoria are focused on other ways to make money beyond cash flow.
On the future of the market:
The market in Victoria went up 35% in two years in 2016-2017. This is an unsustainable rate of growth, so this suggests we should see flat growth for the Victoria market in the near future. The outlier in this way of thinking is Hong Kong. There are 300,000 Canadians living in Hong Kong. If these Canadians decide to more to the West Coast of Canada, this could have a significant impact on the market in Victoria.
Find out more about Rick:Greater Victoria Property GroupAbout Cory Wright:
Cory is the managing broker of William Wight Commercial Real Estate Services. They have 3 offices in Vancouver, New Westminster and Langley. They will be opening a commercial real estate office in Victoria next year.
On why he is excited about the commercial market in Victoria:
Victoria looks to be going through what Vancouver went through about ten years ago - they are having a major development boom. People moving into that market will create demand for commercial product and this creates great investment opportunities. It is on the ground floor right now, but Victoria will be dramatically different in 10 years.
University of Victoria has grown – approx 39% growth in students over the past 5 years. Tech is also one of the driving industries in Victoria and will create a lot of jobs. It is cheaper for Tech to be in BC than in places like Silicon Valley, which will attract investment from Tech companies.
On where he is excited about in the Victoria area:
Downtown Victoria is great. Lots of the buildings in downtown Victoria are heritage buildings which limits the development opportunities and creates suburban downtown environments similar to Yaletown in Vancouver or Gastown. This attracts young professionals and makes for amazing areas and a vibrant city. This is also great for investment in the surrounding areas.
On property types to focus on:
There is not a lot of retail opportunities in downtown Victoria and a lot of traffic in the downtown is driven by tourism. You need to look to the surrounding areas like the Harris Green district where there is a lot of retail on grade. You can get into a retail leasing opportunity and you will start to see a Yaletown environment start to emerge. This would be a great entry level investment for people. Prices are around the $500-$600 per sq.ft. The capitalization rates in Victoria can be upwards of 5% to 5.5%, which are much better than Vancouver. In Victoria, you should be able to acquire with a commercial property with a better annual return than Vancouver, at a cheaper price point than Vancouver, and with the possibility of lease rates increasing at a faster rate. This makes for a good investment.
As it becomes tougher and tougher to make money in Vancouver, they will start to look to other markets like Victoria. Victoria has similar stats to Vancouver as well. From a multi-family standpoint., you have a less than 1% vacancy rate and retail also has little to no vacancy. This is attractive for investors.
On residential vs commercial opportunities:
If looking to residential, you should look towards multi-family as the best investment. Commercial leases have a bit of a leg up because they are triple net leases. As your costs climb year over year with a commercial lease you can pass on those costs to your tenant. This is not the case in a residential lease where you must cover the operating costs yourself and may not be able to increase the rent to cover these increased costs.
With no budget constraints, the best buy would be an office building. There is not a lot of product in the marketplace and the demand is increasing. Vancouver’s office space if very competitive right now and we will see this spill over the Victoria in the short term. You will see vacancy rates decreasing in Victoria and rental rates going up.
With a budget of under $1M, you should look to strata retail. There is also not a lot of opportunity for this in Victoria. If you purchased retail in the outer markets, you will see rates creep up in the coming years since supply is limited.
On the buying cycle of Victoria:
In Victoria, the buying cycle is different. A lot of product is built or being close to finished before it is sold. Vancouver has traditionally been a market where product is purchased presale out of a show room and sold out months or years in advance. As you see Vancouver developers, tenants and investors move to Victoria, you will start to see this buying cycle change. This buying cycle will be an opportunity for Vancouver money to go to Victoria and buy some stuff early. As the market changes, the people used to the quicker buying cycle should do well.
On other areas poised for growth:
Langford is exciting. James Bay. Nanaimo is also poised for growth. There are lots of development applications in Nanaimo in the pipeline. Campbell River is also exciting.
5 Wire (Victoria version):
Favourite neigbourhood: Downtown
Favourite bar or restaurant: Bard & Banker
First place you would bring someone from out of town: Miniature World
What have you bought for under $500 that has positive changed your life: the same toys for his 2 year old and 4 year old to prevent fighting over toys!
What advice would you give your 18-year-old self: Slow down – Rome wasn’t built in a day
Find out more about Cory:
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