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episode # 156

Why Smart Money Comes to Vancouver with Wendy Waters

What’s continuously driving smart money to Vancouver Real Estate? Wendy Waters, Senior Director of Research Services & Strategy at GWL Realty Advisors (with $13 billion under management in Canada!), joins Adam & Matt to answer this question with hard data and solid analytics. Tune in for a candid ‘behind-the-scenes’ look at how a top multidisciplinary researcher & real estate investment strategist analyzes Canadian markets and asset classes for high performing pension funds and institutional clients. And, find out where and what GWLRA is buying and why. Get your notepads out!

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Episode Summary


About Wendy:

Wendy is the Senior Director, Research Services & Strategy at GWL Realty Advisors (GWLRA), which is owned by Great West Life. She joined the company in 2006.

GWLRA manages real estate assets of pension funds and institutional clients. They have about $13 billion under management in Canada. GWLRA has been in Canada since the 1980s and until the past year was Canadian-focused, but they are about to complete their second American deal. They manage revenue-generating properties such as office buildings, rental apartments, retail centres, and industrial parks (some are directly held for clients, while some are jointly-held as part of their open-ended funds). GWLRA’s head office is in Toronto, but they are geographically dispersed with management functions in Vancouver and Calgary, as well.

On what a typical day looks like for Wendy:

Every day is different. Recently, Wendy has been doing a lot of thought leadership tasks such as speaking at industry events about GWLRA’s research and experience as a company. For example, she spoke at the Urban Land Institute’s Emerging Trends in Calgary and Edmonton and moderated this event in Vancouver by asking questions of others.

Day-to-day, GWLRA gathers information on different markets as part of their portfolio strategy. Wendy and her team look at questions such as what types of assets clients should have and where these assets should be. Pension funds, particularly Canadian, are long-term investments, typically of a 15 to 20-year horizon. They look at economic, job, population, and demographic trends. Infrastructure and how urban areas are changing, along with where real estate is that you’d want to hold and how that might change 10 years from now. They track drivers and changes of these shifts. They also track what’s happening in real estate markets through brokerage houses (e.g. office vacancy, rental housing, and new supply vacancy in major cities; ecommerce trends for retail and industrial strategy).

On the data they use:

GWLRA looks at historic data to understand how certain cities and asset types have performed during strong and weak markets, along with markets driven by different economic and geopolitical factors. Wendy likes to look at as long a history as possible on statistics: there isn’t great real estate data prior to 2001 but decent economic data, such as for recessions, oil prices, and the value of the Canadian dollar, goes back to the 1980s for many metrics they track.

On how Vancouver is doing:

Vancouver has been doing really well. All asset classes are being driven by two big things: job growth and population growth. Since 2001, Vancouver’s job market has been steadily growing, with just a few short breaks, and the last few years was at an even stronger pace (2-3% job growth, but there were many months at 5-6%). Generating jobs fills up office space, which brings people to the city and fills up housing. This generates demand for products, and therefore retail and industrial space to fulfill that demand. Along with all of this is population growth, especially by those who are 25 to 39 years old. Compared to 2005, there are over 90,000 more people in the Vancouver area within this age group (this includes those aging here and those who have moved here from within Canada or other parts of the world).

On if the media stories about so many young people leaving Vancouver for other parts of BC or Canada are misleading:

They aren’t misleading. There is always a flow, and this statistic refers to net growth of people. With interprovincial migration, sometimes the net number staying in Vancouver is only 1,500 people per year, but the flow may be 10,000-20,000 people moving in and out over this time. With housing prices, we know there are many compromises you must make to live in Vancouver—some people can make things work and have come for great job opportunities that the city offers, while others can find equally good opportunities in smaller parts of BC. This 25 to 39-year-old age group fuels demand for rental housing and first-time buyer product. As well, the strong growth in condo prices keeps some people renting, who otherwise may have bought a condo five or six years ago. They can’t afford to do this today, at least not where they want to live.

On what the statistics mean for GWLRA’s institutional investors, in terms of population growth and the increase in this age group:

It’s been very positive for real estate demand. Vancouver is a very expensive market because of the lower Canadian dollar; real estate is not necessarily as expensive in foreign currencies. Cap rates and yields investors can expect are very low, partly because the market is considered low risk: people want to live here. Vacancy problems in purpose-built rentals and office buildings are very unlikely. The problem is it’s hard to make the numbers work for their clients in Vancouver. Pension funds need to pay out their unit holders and typically look for a higher yield than what can be offered in Vancouver (unless they can do something creative involving development, i.e. investors can get developers’ profit as part of their return).

On how the next three to five years look for the Vancouver market:

It may be challenging to acquire more assets, but GWLRA sees Vancouver as a market in which you would mostly hold the assets you have. Perhaps assets in outlying or suburban areas won’t be seen with a 15 to 20-year horizon, but they like Vancouver’s core where the experience economy is happening with walkable, urban amenities (as in most North American cities).

On the notion of the best investments being in urban centres and the generational shift of people choosing to rent rather than buy, in order to stay where they want:

GWLRA surveys renters and has proprietary data on what renters are thinking. In Vancouver and Toronto specifically, they asked why people rent and found out it’s primarily so they can walk to work and stay in areas they can’t necessarily afford to buy. They survey people making a certain income and see these trends. This trend is even stronger in higher income earners of, say, $100,000 per year, who may not find a condo they want in downtown Toronto or Vancouver.

On if Vancouver is becoming a city of renters, much like New York is:

Both Toronto and Vancouver are cities of about 50% renters in their cores. Montreal and the Maritimes are areas of [many] renters, too. Wendy thinks this will grow because of the experience, not having to make a long-term commitment, lower costs [than owning] and cost certainty, and not being responsible for maintenance and repairs.

On the metrics most important for making [investment] decisions:

GWLRA also looks at economic drivers. They use a tool called location quotients, which measures the concentration of employment in a certain sector of a region as compared to the national average (a score of more than one means a higher concentration). GWLRA looks for multiple economic drivers in a city, along with employment patterns of those drivers, as something that indicates higher stability. The tech and information culture sectors are big in Vancouver’s market, along with the Port of Vancouver and natural resources (though this isn’t as strong a driver as it was in the late 1990s to early 2000s when forestry companies were being bought out). Tourism is also big, though not as directly correlated to real estate as it is to retail.

On the scope of GWLRA’s advice (i.e. if they advise whether to buy in Vancouver):

They don’t try to time markets but do look for long-term investments (timing markets would fall under a different department in GWLRA). The research group is more focused on short, medium, and long-term economic performance, along with how it correlates to real estate returns.

On if they focus on other areas of Vancouver and the Lower Mainland:

Yes. The urban-suburban nodes across North America are mature in terms of being an alternate place to live and work as compared to downtown, and possibly at a lower cost for office tenants, renters, or owners.

In Lower Lonsdale, GWLRA has a rental apartment development site going to Council soon, and they have a construction site on Robson Street in Vancouver. They would watch areas like New Westminster for multi-residential opportunities. Construction and land prices are high in Canada, so it’s harder to make things work. GWLRA has multiple development sites in Calgary and one in Edmonton, which will be easier to move ahead with than what they have in Vancouver. It takes creativity to make it work in Vancouver – maybe a partnership or acquisition of an existing asset with extra land to densify. For instance, they have a partnership land lease with the Tsawwassen First Nation for an industrial park and Amazon is their first tenant in Phase I. At Georgia and Seymour, they took down a parking garage and will replace it with an office building and underground parking.

On other Canadian markets Wendy is excited about:

GWLRA likes Calgary, though its office market is challenged (vacancy is anywhere from 23% to 27% downtown). Alberta has some compelling demographics: a younger population (they have attracted more 25 to 39-year-olds over the past 15 years than Vancouver and Toronto have). Calgary has the lowest percentage of purpose-built rentals per capita in the country; so, new rentals are being absorbed quickly, even in a downturn. This is because the city did very well for ownership; there was a lot of condo construction during the oil boom, which was great for creating urban, liveable spaces in the downtown core. Alberta has a lower dependency ratio and more working-aged people (i.e. aged 15 to 65), which is good for investment. The economy is slowly diversifying, and Calgary is the fourth most liveable city in the world (surpassing Vancouver and Toronto). They have put a lot of attention and money into entertainment and the arts, bike lanes, waterfront parks and walkways, recreation, etc. However, there are challenges with the energy sector, which is still a major economic driver despite low job growth and slow economic diversification. Calgary has benefitted from the transportation/logistics sector, partly due to retail growth in BC and Vancouver because it’s a western Canadian distribution hub. They had gradual growth in information culture (e.g. software jobs), which was a driver before the past energy boom (2001-2002) and companies were moving to Calgary. However, the universities are not graduating a lot of computer science people, so growth is slow. It’s great to move a business and relocate there, but the labour pool is not as big as in other markets.

In addition, Wendy has been watching Montreal for years. It’s now finally living up to her expectations in terms of economic growth, growth of the 25 to 39-year-old age group, rental rate growth in purpose-built rentals, and growth of office demand and new supply, which is exciting. It’s a major city and a great world-city in terms of culture and language. As well, Toronto has so much happening, with the amount of construction in both residential and office. There is a rebirth of downtown and its neighbouring areas (for instance, south of the lake). It’s a much more exciting place to be than it was 10 years ago.

On whether Vancouver’s economy (or BC’s) is as dependent on real estate and related industries and trades as Calgary’s economy is on the energy sector:

[Real estate] is an important part of Vancouver’s economy, but it’s not as important as oil. Wendy looks at real estate and construction (which shows as a high location quotient in Alberta, too) as a passenger as opposed to a driver. It responds to other economic drivers in the region. When GDP is calculated, it includes the impeded value of people’s homes (i.e. the cost to rent if you don’t own). You can remove this figure, but not everyone addressing the value of real estate to Vancouver’s economy does so. The issue with this is if you’ve paid off your mortgage, you’re getting, say, three times the value of your home than you did 15 years ago. However, the average person likely feels their home is worth the same as what they bought it for.

People don’t build things like houses, office buildings, schools, hospitals, or transit infrastructure if there isn’t something else happening (e.g. job growth). [Real estate] is an important part of the economy, but it’s actually supporting other areas, such as growth in container traffic at the port or growth in technology jobs. However, Vancouver’s real estate sector exports its services across the continent—you’ll notice Vancouver names on new construction signs all over North America (or names of companies whose leadership is here, such as Bosa, Onni, Westbank, and Pinnacle). Other local companies have a presence in markets outside Vancouver, such as Concert. As one of the first places in North America to have the “condo living boom” (e.g. the old Expo lands from the 1990s is now Yaletown), Vancouver exports urban condo experience and building expertise to other markets. For instance, Toronto is doing similar development and is one of the busiest places in North America for construction.

On smaller markets and American markets that GWLRA looks at or advises clients to get into:

They look at smaller markets primarily for rental (e.g. Victoria) and for retail centres (e.g. Kelowna, Victoria, and Nanaimo). There are different criteria, as well: for rentals, they look at the bigger “secondary” cities, whereas for retail it can be a good-sized trade area in a smaller centre that works for major retailers.

In the US, GWLRA recently acquired a couple of companies. American growth has shifted away from gateway markets and into places like Denver and Austin. Seattle may have passed its peak, though there’s still a lot happening there with Microsoft and Amazon. New York will always be a good, dynamic market but, like Vancouver and Toronto, it’s expensive. Same with San Francisco. With any of these cities, GWLRA looks for economic diversification, job resiliency in both strong and weak markets, and, for office or residential, walkability to urban amenities. For industrial, they like the ports and anything supporting world trade (just as they like in Canada).

On GWLRA’s published report about many Vancouverites living with their parents and whether enough supply will come in the next few years:

Wendy does not think there is enough supply coming into the market. She is starting to worry about housing supply as a risk to office demand and therefore a risk to economic growth. There just isn’t enough supply that’s affordable to the people that growing companies here are hiring. A result of this is the 92,000 people in the Vancouver metropolitan area, aged 25 to 39, who are living with their parents. Plus, for the 40,000 people moving into the region, you’d need about 12,000 rental homes to meet their needs. Finally, research shows many people in rental condos would rather be in purpose-built rentals.

GWLRA feels you can’t oversupply the Vancouver market with purpose-built rentals. There just isn’t enough housing being built for the pent-up demand combined with the growth from jobs. It’s a concern, and GWLRA is monitoring the new provincial and municipal government leadership to see what solutions they come up with as they find their way. It’s too soon to be optimistic about this. Over time, Gregor Robertson and the Vision Vancouver party figured out how to work through the common issue that many Vancouverites were not opposed to new housing, just to new housing next door to them. They knew how to say “yes” and focus on the broader needs of the city. Now, people at City Council are pretty novice and need to figure out how things will work. Housing is a very tricky file, politically.

On whether the vacancy rate of about 1% will likely go up over the next several years:

Certainly not in the next two years. In the next 10 years, it would take a lot of construction for the rate to increase. This is a regional-wide issue: because there are so many jobs in the city of Vancouver, many amenities, and walkable neighbourhoods, there will be a rush for people to locate there. So, for Vancouver to get above 1%, the suburbs would need to be at a 5-6% rate. there needs to be enough of a price difference for people to leave the city (e.g. paying $4 per square foot instead of much less in Burnaby or Port Moody). Vacancy for Vancouver won’t increase unless city councils get together and plan mass rezoning and approvals or something similar, which would be very tricky to do.

However, the region could get higher, and Wendy is excited about groups creating rentals in the suburbs. More space for the same price as Vancouver, on transit, will help with regional choices for renters.

On how or if Wendy’s PhD in history has influenced her research trajectory and analysis:

It was great training for real estate. Wendy’s specialty was 20th century economic development and how technological change brought social and economic change in developing countries. Now, she looks at different technologies, different demographic groups, and new experiences and how they will shape the economy in the long-term. She did a lot of comparative analysis theory (as historians can’t create something in a lab). This involves looking at similar places where something new happens in one place but not the other, and then seeing how things played out over time. GWLRA uses some of this theory in looking at real estate markets (e.g. how one market did in an economic downturn vs. another), economic drivers, job growth, and infrastructure differences.

On examples of other markets that GWLRA compares to Vancouver:

Vancouver’s market can be looked at as:

  • Very geographically-constrained, like San Francisco and Toronto. (Toronto is less geographically constrained at its widest margins, but its downtown core is so built out that it shares similar characteristics to Vancouver.)
  • A former natural resource hub, like Calgary.
  • Surrounded by many municipalities, like San Francisco. You can look at comparative cities and see what’s worked and what hasn’t. Wendy has done a lot of work with the Urban Land Institute to create programming about this.


The five-wire:

  1. Favourite neighbourhood in Vancouver: Commercial Drive, where she lives. Wendy also likes Main Street from 25th to 31st avenues and the Lonsdale area, as well.
  2. Favourite bar or restaurant: Libra Room on Commercial Drive
  3. First place she brings someone from out of town: Downtown, the seawall, or Grouse Mountain, depending on the person and season
  4. West-side mansion or downtown penthouse: Downtown penthouse
  5. Something she’s purchased in the past year under $500 that’s positively impacted her life: A Klean Canteen coffee mug that completely seals. It’s great for cycling and commuting and cost $30!

To find out more about Wendy and GWLRA, visit GWL Realty Advisors, for news and research, visit GWL Realty Advisors News, and for more on today’s topics, the Urban Land Institute has BC programming related to comparing cities and Vancouver news from a holistic perspective.

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