A crane moves a load into the new office building at 750 Pandora Ave. The 13-storey building, slated to open soon, features nearly 178,000 square feet of office space and 11,000 sq. ft. of commercial space including ground floor retail. Don Descoteau/Victoria News

2018 prognosis for commercial real estate markets good for Greater Victoria

Rising development costs, end-user pricing will peak, but optimism remains for success in aftermath

Experts in the buying, selling and leasing of commercial real estate in Greater Victoria, the Lower Mainland and even Toronto are forecasting another solid year for development and investment in our region.

But attendees of Colliers International’s annual market survey reception also heard cautious optimism amongst the panelists gathered onstage at the Fairmont Empress Hotel’s Crystal Ballroom.

Real estate specialists in various categories with Colliers painted a positive picture for listeners of high demand for downtown office and retail spaces, industrial and other commercial buildings, and frequently higher cap rates – a metric for measuring and comparing investment opportunities – for properties here than those seen in the Vancouver area.

Bill Tucker is president and CEO of Omicron, developer of Eagle Creek Village in View Royal and the company transforming the Harbours Tower Hotel into condominiums. While he had many positive things to say about working in the Victoria area market, he worries that the spiralling cost of development and shortage of trades workers – major factors driving up pricing for the end users of buildings – will conspire to bring the demand for such projects and spaces back down to earth.

“[In Greater Victoria] what we’re seeing today is lots of [developers and investors] are being saved by the fact the market has continued to ratchet up; that music is going to stop, because prices can only go so high,” he said.

“For example on the multi-family side, our wages aren’t keeping track so at some point we’re going to see slowdowns, and there’s always this crossroad that we hit where you’re not getting more for your product, but your costs are actually catching up and they’re going to eat you alive. So it’s a very difficult time and you have to be very careful out there in the marketplace.”

On that point, fellow panelist Andrew Tong said having good relationships with local contracting companies and assuring them of a consistent stream of work helps avoid cost-inflating trades wars.

Tong, senior vice-president of investments of Concert Properties, which has built a number of condo buildings in Victoria and is partnering with Jawl Properties on the Capital Park development behind the legislature, offered his take on what could make or break projects as the price factor reaches the boiling point.

While some will inevitably fail, he said, the companies that offer “a quality of design and project … quality location, and those that have a track record,” may be better positioned to withstand negative price pressures.

Among the data shown by the Colliers reps was the downtown streetfront retail vacancy rate being less than four per cent in 2017, the lowest since 2009, due to “strong demand and population growth.” The rapid expansion of retail spaces at various Greater Victoria shopping centres, however, is expected to impact demand downtown.

Investor interest in the multi-family housing market was also strong in 2017, seeing a 15-per-cent increase in building sales over 2016. Vacancy rates continue to be low with high demand, and the new units coming on the rentals market are being absorbed quickly. A similar pattern is being seen in the office space market.

Jawl Properties is contributing greatly to the amount of new office space available in Victoria, with phase 1 of the Capital Park project in James Bay completed and filled mostly by provincial government offices, and buildings at 750 Pandora Ave. and 1515 Douglas St. due to open in 2018. The anchor tenant for the former is the B.C. Investment Management Corporation, which will move from the Jawl’s Selkirk space, while three expanding local tech firms will take up a significant amount of space in the Douglas building.

With the panel having talked about the effect on real estate markets of technology in all its forms, from the explosion of tech firms in Victoria to the way their companies are using innovations, Colliers CEO David Bowden weighed in with a longer-term prediction for the region.

“We talk about the tech sector being important in Victoria; well, the tech sector is important everywhere, it’s the number one employer everywhere,” he said. “You’re going to see a lot of those type of organizations come here because of the educated workforce that exists and the fact that people want to be here.”

Despite work needing to be done on getting more local people into the trades, Tucker also remains bullish on Victoria.

“We’re still really excited about this market and everything that Victoria offers, and we think it’s going to continue to be a great place to do business.”


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