Change comes slowly to the Vancouver apartment market

Taking the pulse of the Vancouver apartment market at the mid-year mark of 2013 the 48th edition of The Goodman Report had good news for purpose built apartment developers, but had less positive results for the existing market.

On the less encouraging side The Goodman Report, co-authored by the father and son team of David and Mark Goodman partners at HQ Real Estate Services, shows apartment building sales in Metro Vancouver were down for the first six months of this year, compared with the same period a year ago.

In the Greater Vancouver area, 45 apartment buildings traded hands during the first half of the year, which is down from 53 apartment buildings compared to the same period in 2012.

“I think our market is going to stay relatively calm, at least from the investors’ side,” said David Goodman.

A Vancouver market that is good for investors translates into low vacancy rates and challenging conditions for tenants. “We’ll continue to have a housing crisis is what I’m saying,” Goodman said referring to the lack of affordable and available rental in Vancouver.

Canada Mortgage and Housing Corporation’s rental market survey for June shows a rental apartment vacancy rate of 2.9 percent in Vancouver.

“Without densification, we’ve got a problem.”

Purpose built housing gains momentum

Although numbers for the existing apartment market are less than stellar, Goodman sees slowly improving conditions for ‘purpose built’ apartment buildings.

The key word is slow.

“We’re seeing a lot of attempts to build rentals,” Goodman said although “There are not a lot of deals being done.”

One hindrance to developers is a city ban on demolishing and replacing West End low-rise apartment buildings with taller buildings and more units. Some of these building are up to 60 years old, Goodman says. “There is a need for renewal.”

On the other hand the sky-high cost of downtown condos and the slowing pace of condo development bodes well for purpose-built apartment developers. “I see the condo market falling off somewhat,” Goodman notes. “A lot of people who have looked for opportunities to buy units (in downtown Vancouver) will have to look to (other) urban areas, or rent.”

The City offers incentives

The City of Vancouver is combating the shortage of affordable housing by peeling back tight restrictions on apartment development with incentives to build.

The incentive program called Rental 100 is offering density bonuses, relaxed parking requirements and reduced developer costs for purpose built apartment construction.

“Vancouver, to its credit, has implemented the Rental 100,” Goodman said. “Slowly but surely things are happening. They’re creating an environment for renters. They’re making it a little easier for developers to make the numbers work.”

For the first time in years Vancouver is allowing 20 to 50 storey buildings Goodman added.

Vancouver faces some unique circumstances, “It’s still hard to make rentals work out here”.

It’s lauded as being among the most livable cities in the world, which attracts people to Vancouver, but land is at a premium — double or triple the cost elsewhere. Building costs are as much as 30 percent higher than other cities.

“It’s either let us in to create housing opportunities or it will be a city just for the rich,” Goodman says.

With limited land to expand upon, he suggests the cities of Surrey and Langley might be municipalities offering opportunities for future growth of purpose-built apartment developments.

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