There is no secret this past year has bolstered some amazing results for those who invested in commercial real estate and this week we are going to give you the VCREP top 5 markets we like for 2022!
Rod Mackay from William Wright Commercial’s Vancouver office joins Cory this week to discuss what markets will be ones to watch heading into the new year. There are some of the obvious picks that seem to have made everyone’s list for next year, but there are a couple that might catch you off guard. Rod and Cory break down why these cities made the list and what asset class to watch out for in these markets. You may also be surprised by what cities didn’t make the list this year! Not to say those cities are bad investments…they just don’t offer the same upside in the short-to-medium term as the VCREP Top 5. Whether you’re a novice investor or you have a large portfolio, this is a must listen-to episode heading into 2022!
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
What are the top 5 commercial real estate investment markets in BC for 2022?
The top five commercial real estate investment markets in BC for 2022 are Kamloops, Chilliwack, Kelowna, Maple Ridge and Victoria.
Where in Kamloops should people invest? What commercial real estate asset classes should we be buying in Kamloops?
We like the downtown Kamloops market on the retail level or in multi-family. Industrial in any market is a great thing to buy, so we won’t touch on that too much.
Why is Kamloops a good place to invest in commercial real estate?
The pipeline is coming through, which will bring more business. Kamloops has always been a transportation hub and they market themselves as the tournament centre of Canada. Sectors that are growing in Kamloops include healthcare, development, construction and education. All of these sectors will help stabilize and grow the Kamloops market.
Compared to Kelowna, Kamloops hasn’t had a burst yet. But over the next decade, cap rates will compress and more people will be moving into Kamloops as they get priced out of Kelowna. With commercial real estate, population growth must happen first and then commercial follows.
What are the cap rates like in downtown Kamloops? Where are lease rates headed in Kamloops?
The market had swung away from downtown Kamloops but now it’s coming back with a lot of development and excitement. We’re seeing cap rates in the 5 range in Kamloops – and they were in the 6 range only a couple of years ago. As cap rates go down, prices go up. As the population grows, you’ll see greater demand for retail, which will push retail lease rates up. If I’m buying something at a 5 cap rate with a $30/foot lease rate, I can sell that in 5-10 years at a 4 cap rate and a $40/foot lease rate.
What are the downsides to investing in Kamloops? Should we invest in Kamloops or Vancouver?
Compared to Vancouver, you’re going to have a slower lease up in Kamloops. You may have to offer more incentives to get tenants in. But imagine if you had invested in Yaletown in the 1990s. There would have been some fluctuation at the time but if you are still holding it in 2021, you’re doing very well. There’s a great opportunity in Kamloops right now as demand is starting to grow.
What should we invest in in Chilliwack?
You can’t go wrong investing in retail, multi-family or industrial commercial real estate in Chilliwack. Chilliwack is not an office market, but all of the other commercial asset classes are strong going into 2022.
What is happening in industrial development in Chilliwack?
There is a ton of industrial development in Chilliwack and absorption is growing rapidly. A lot of businesses struggle to get into Vancouver from further North or from Alberta. Many of those businesses are looking to reposition and relocate to Chilliwack to cut down on their delivery times.
Why should we invest in commercial real estate in Chilliwack?
With covid, more people have moved to Chilliwack to get more land for themselves and their families. Chilliwack is one of the hottest residential real estate markets. On the commercial side, we’re now seeing vacancy rates going down, lease rates going up, and many more clients interested in moving into Chilliwack.
Cap rates in Chilliwack are coming down dramatically. When the Molson-Coors plant moved to Chilliwack, it started an industrial revolution. Chilliwack has come a long way but there are still great growth opportunities to get in now at a good price.
Is now the right time to buy real estate in Kelowna?
Kelowna has seen a lot of run up but there’s still a lot of opportunity in that marketplace. A lot of condo projects from the 2010s didn’t launch or launched very poorly. Fast forward to 2021 and a lot of people are moving their primary residence into secondary markets, like Kelowna. It used to only be a city for recreational homes and Alberta oil money.
Some people think we’ve missed the boat on Kelowna. You probably won’t see the same overnight success as you might in other markets. But Kelowna is a market that is still growing. There are attractive cap rates, higher lease rates, and the ability to build equity through mortgage paydown. It is a small market, so it will be harder to get in as cap rates compress and lease rates go up.
Why invest in Kelowna?
Kelowna has an international airport, new hospital, expansion of the UBCO campus, tourism, recreation, real estate, development and so much more. Reports now say Kelowna may have the best climate to grow marijuana in Canada, so there’s a potential for that industry to grow there too. In 2022, a massive amount of industries will be thriving in Kelowna.
The airport is continuing to expand. West Kelowna, Vernon and other nearby markets are also growing. All of this growth on the residential side speaks to a growth in commercial real estate to come.
What are the cap rates and lease rates like in Kelowna?
Multi family is seeing under 4 cap rates. The lease rates downtown are continuing to climb. Industrial is selling out at higher and higher rates. We’re also seeing more companies look at Kelowna as their secondary market.
What is the future of Kelowna real estate?
For all the condos that were sold and are now being built, were they sold to speculators or investors? Are those buyers looking to rent or looking to sell? If Kelowna sees a huge inventory of condos dropped on the rental market or the resale market, can it handle that?
How is Kelowna real estate different from Vancouver real estate?
Kelowna has similar challenges to Vancouver in that they are land-locked with the mountains and Lake Okanagan surrounding them. I don’t think we’ll see the same run-up on lease rates in Kelowna as we saw in Vancouver. Shockingly, the price of industrial real estate is almost the same in Kelowna as it is in Vancouver.
How do the BC wildfires affect the Kelowna real estate market?
Investors have a very short term memory. Only a few weeks after the wildfire season ended, large projects in Kelowna were selling out.
Why invest in Maple Ridge?
Commercial lags behind population growth. As Maple Ridge continues to grow, demand for commercial real estate will follow, and follow quickly. A lot of people think they’ve missed the boat on Maple Ridge on the residential real estate side, but there’s still an opportunity to get in with commercial real estate.
What are cap rates like in commercial real estate in Maple Ridge?
Cap rates are getting towards 4 in Maple Ridge. We’re seeing a lot of activity, high demand, and multiple, subject-free offers over asking.
Where should we invest in Maple Ridge?
We like the 224th and 227th corridor in downtown Maple Ridge. Downtown Maple Ridge is where your best investment is, whether it be retail or multi-family. Again, industrial anywhere is doing great. The downtown area of Maple Ridge is going through a major transformation. Getting in now as downtown Maple Ridge expands is a great opportunity.
Why invest in real estate in Victoria, BC?
Victoria is anchored by government tenancies. Coming out of covid, having a resilient tenant like that is key. Victoria has seen a huge run-up of population growth throughout the pandemic. This marketplace has education, real estate, tourism, government, technology, an international airport, and more.
Greater Victoria markets, like Langford and Sannich, are growing out of control. Pricing has taken off in Victoria and the sell-through of condos is 2-3x what it was a few years ago.
What are the challenges to Victoria’s real estate market?
The housing market may be a challenge for Victoria. Downtown Victoria has a lot of historic buildings that you can’t touch, which pushes development outside of the downtown core. People are coming to Victoria for school or work but the housing supply is shrinking dramatically. Students who used to leave after graduation are now staying and settling down with families, creating more of a housing crunch.
Does Victoria become a place like Vancouver where people get priced out? Where do people move to if they can’t afford to live in Greater Victoria?
Victoria will also have to deal with infrastructure issues. How will they move all of these people around? Regardless of its challenges, Victoria is still the best marketplace for investment affordability, vacancy, absorption and cap rates.
What asset class should we invest in in Victoria?
You can’t go wrong investing in any asset class in Victoria. In multi-family, you were seeing 5 caps just a few years ago and now we’re seeing cap rates in the 3 range. People are graduating from UVic but they’re not leaving Victoria. The companies and infrastructure are in Victoria now so people aren’t having to leave to find jobs. This will put more pressure on commercial real estate, whether that be retail, industrial or office space.
What is development like in Victoria?
In the Greater Victoria marketplace, only a handful of towers are launched per year – whereas you’d see that many launch in the Lower Mainland in just a few months. There’s not a lot of supply coming to market and absorption is higher than what it once was. Population growth through immigration and repositioning is increasing rapidly.
Should we invest in real estate in Kelowna or Victoria?
Kelowna can feel more like a municipality pretending to be a city. Victoria is a city. It has a lot of challenges, but from an investment standpoint, demand is growing and there’s still an opportunity to make money. Lease rates will continue to go up and cap rates will continue to go down. It’s a marketplace you want to get in now. A lot of money was made by the people who got in 24 months ago and there’s still a lot of money to be made by the people who get in now.
How is the industrial real estate market in Victoria?
Industrial is a great investment but the future of industrial real estate in Victoria is uncertain. There are about 400,000 people in Greater Victoria and growing. There are currently 1.5-2.5 million square feet of industrial space coming into that area in the next decade, with a large chunk coming in the next 36 months. Is that too much for a small market? Right now absorption is great but is that just due to pent up demand? Or will demand continue to stay high? Industrial real estate in Victoria isn’t a bad investment but there is a question mark on it.
A lot of people think if they move their business to Victoria, it will be cheaper. But Victoria is seeing lease rates of $18-20, which is what we’re seeing in Vancouver. Greater Victoria has the lowest vacancy rate in industrial space across North America at 0.1%. It’s a landlord’s market for now but does that change in 24-36 months? Do rising interest rates change the demand? The saving grace may be owner-occupiers who realize it’s cheaper to own than rent.
What are some other great cities to invest in commercial real estate in BC?
Surrey is an absolute must for commercial real estate investment. Surrey has had some great run up recently with many new developments. Cap rates have come down, so you may not get the same short term returns as you would in other growth markets. That’s why it’s not in our top five, but Surrey is still a great place to invest in commercial real estate.
Nanaimo is another good place to invest in commercial real estate. With the housing crunch in Victoria, a lot of people are going to end up in Nanaimo. Multi-family has gone from a 5 cap rate to sub 4 in some cases. Nanaimo will likely make our list next year.
Mission is another commercial real estate market we like. The housing market in Mission has grown a lot through covid as people continue to look for more space, and more bang for their buck. That area is going to see a lot of transformation in the commercial real estate world in the next few years.
What advice do you have for someone looking to invest in commercial real estate?
Find a commercial broker who works in the specific area you’re looking to invest in.
Get in touch with Rod Mackay: email@example.com
Find out more: https://williamwright.ca/