Posted: Feb 26, 2007, 4:50 AM
Join Date: Jun 2006
Location: Coquitlam/Rainbow Lake
Market forces, not Games, to drive demand (Vancouver)
Market forces, not Games, to drive demand
The 2010 Vancouver Winter Olympics will not be a big driver of new housing demand, predicts a leading residential real estate market analyst.
Traditional market forces - not the Games - will still be dictating demand around 2010, says Jennifer Podmore, managing partner of MPC Intelligence.
MPC Intelligence updates companies monthly on residential projects in Vancouver, Victoria, the Interior and Calgary through its website (www.mpcintelligence.ca). Clients include developers, builders, lawyers, architects and municipalities.
Podmore recently spoke at a panel discussion at the Buildex 2007 conference on the future of the Greater Vancouver market.
File photo by Bayne Stanley, Business Edge
MPC Intelligence managing partner Jennifer Podmore predicts the Greater Vancouver residential market won't see the same rapid escalation in prices this year.
She noted that today's prices will go up only slightly between now and the Games. "But the big message that we're giving our clients is that they have to plan in today's dollars for tomorrow's market," she said in an interview.
"By the time the Olympics hit, that's going to be our eighth consecutive year of (market) growth, if we keep going in that way," she added. "No market - no matter how healthy and sustainable you are, and how great your economic indicators are - can handle that sort of sustained long-term growth."
Developers recognized long ago that the Games would not be a huge source of residential demand. And this year, Podmore predicted, the Greater Vancouver residential market won't see the same rapid escalation in prices that it has in the past couple of years, purely as a result of reduced affordability and because most buyers are "end users" - people who will actually live in the homes - rather than investors.
MPC is monitoring 2,100 residential projects, which contain more than 71,000 units, that are now in the planning and construction stages. High-rise condos make up the bulk (4,335) of 8,674 new units expected to come on the market in the near future, while low-rises (1,691) and townhomes (767) rank second and third, respectively.
In the future, Podmore expects developers to build more woodframe condos, which cost less than concrete structures. The high cost of concrete has repeatedly been cited as a prime cause of construction-cost increases in the past few years.
Podmore forecasts that the downtown Vancouver sub-market will have the highest unit cost this year - $825 per sq. ft., compared to $775 in 2006. Surrey and Langley will have the lowest at $390.
Although the Games won't affect housing demand, they will have a big impact on the industrial market, according to Russ Bougie, an industrial-property sales specialist with Colliers International. Bougie is expecting a sizable decline in industrial demand following the Games.
Now, however, industrial vacancy is at only 1.4 per cent. In other words, for every one million sq. ft. of industrial land, only 14,000 sq. ft. of warehouse space is available for lease.
"You don't know how many calls I get from tenants looking for X amount of square feet with a dock or a loading door, and it doesn't exist," said Bougie.
As a result, many companies are opting to operate several small locations rather than one large one, and firms are moving their operations further east toward the Fraser Valley. Home Depot opted to acquire property in Port Coquitlam for a 20,000-sq.-ft. warehouse, he said, because it could not find a site closer to West Vancouver and Vancouver stores that the new facility will service. Bougie predicted an average lease rate of $110-$120 per sq. ft.
"Our market has changed a lot," said Bougie, referring to higher industrial-property prices. "I'm not complaining."
The Games will also have an impact on demand for office space, said Andrea Welburn, research director for Cushman Wakefield LePage.
"There are going to be a lot of short-term leases and a lot of companies (opening new offices) related to the Olympics," said Welburn.
But this year, demand for office space, which has been extremely high the past few years, will start to ease.
Approximately 12 to 15 floors worth of office space downtown may stabilize rental rates that have reached $40 per sq. ft. recently.
"Downtown, we're about five per cent vacant - which is nothing," said Welburn.
Burnaby and Surrey are poised to add more supply while New Westminster, which has a 16-per-cent vacancy rate and is not an overly attractive sub-market, is making slow, steady improvement.
Meanwhile, strong demand is also expected to continue in the retail sector. But Curtis Redel, a retail specialist with Avison Young, indicated that market will still experience some significant changes.
Some planned projects will be postponed as consumer spending slows down and a labour shortage continues beyond 2010.
Today, the drivers of retail real estate demand are the strong North American economy, U.S. consumer spending and investment, downtown Vancouver's population growth, street-front locations, the labour shortage and rising land prices.
As a result of these factors, local tenants have been pushed out by international chains.
Based on the number of people who sought out Podmore for one-on-one questions afterward, most Buildex conference delegates were interested in residential demand.
"It was quite interesting," said Rich Zalaudek, a realtor with Royal LePage. "They all wanted her to forecast what was going on. They all wanted the answers.
"People are relying on somebody else to get the answers and then go ahead and (follow) that (advice), instead of trying to figure it out themselves."
He said the Games will have more of a long-term effect on residential demand.
"We're going to be on a world stage," he said. "They're going to go, 'Wow, what a fantastic place.' But I don't think they're all going to rush here and buy homes right away."
The relocation of industrial properties to the Fraser Valley and elsewhere will help to balance the Greater Vancouver market as jobs and homeowners move with them, he added.
"Since the prices of homes are so high, there is relief in the valley," said Zalaudek. "(The average home price) is slightly less. I think (movement of industrial sites) is good. It's spreading things out and making the whole Lower Mainland more livable. It just makes more sense."
James Ko, project manager with Kozy Development Inc., a Vancouver-based multi-family home and commercial builder, said he was glad to hear expert speakers confirm trends that he has already noticed.
"The forecast, I think, is good," said Ko. "They've got reasons behind what they're saying. It's a growing city. There's a cycle."