The total dollar volume for commercial real estate transactions in the Metro Vancouver area plunged 48 per cent in 2023 compared with 2022, research by Colliers Canada shows.

The real estate firm reports $6.75 billion worth of transactions in 2023, compared with $12.95 billion in 2022. All categories of real estate experienced an annual decline, its research shows.

The total number of sales fell in lockstep, down 47 per cent to 1,347 last year from 2,352 in 2022.

Kirk Kuester, Colliers' executive managing director in Vancouver, told RENX the region's market experienced “one of the more challenging cycles, if not the most challenging cycle” in years.

“I would say that relates largely due to the liquidity issue that most everyone has faced and continues to face as a result of just the overall tightening in the capital markets,” he said. “On a relative basis, my sense would be that our transaction velocity is probably lighter, softer, has probably been more affected than other markets.

"I might attribute that to the fact that our valuations really kind of ramped up over the last couple of years and the delta between the bid and the ask on most everything is probably more challenging in this market than in any other market . . . We probably are a bit more challenged in actually getting deals closed.”

Kuester said there’s not the level of distress today that people might think or expect.

A transactional roller-coaster since 2017

“What we’re seeing today is a lot more structuring being negotiated into transactions in a way to try and hit an ask, but through terms and through time get the buyers where they need to be from a return perspective because everybody’s returns today kind of reflect capital markets, current interest rates,” he said.

“And they’ve had a really, really serious effect on the marketplace and on pricing.”

In contrast, in 2021 there was just under $14 billion in transactions in the market. The Vancouver market had rebounded in 2021 and 2022 following COVID.

In 2020, the market was about $7 billion while in 2019, prior to the pandemic, governments imposed a number of taxes and regulations which served to slow the market. Transactions were just under $7 billion that year as well.

The previous high of over $14 billion occurred in 2017.

According to Colliers, the top-10 deals in 2022 totalled $1.2 billion, while in 2023 it was $824 million.

Vancouver's Top-10 in 2023

Here are the top transactions during 2023:

1. 2325 190th St., Surrey – $178 million – Industrial, Coastal Heights distribution centre, sold by Cedar Coast and Pure Industrial to Crestpoint Real Estate Investments.
2. 1145 Inlet St., Coquitlam – $111+ million – Residential land, sold by Rivers Inlet Enterprises to Ledingham McAllister Homes.
3. 5502 Lougheed Hwy., Burnaby – $94 million – Residential land, sold by Brentwood Lanes to Keltic Development.
4. 1527 Main St., Vancouver – $80 million – Residential land, sold by McDonald’s Canada Restaurants to Greystar Developments.
5. 380 Riverside Rd., Abbotsford – $65 million – Industrial, sold by Powell Industries to TFI International.
6. 20551 Langley Bypass, Langley – $63+ million – Industrial, sold by Rockcliffe Estates to Benchmark Group.
7. 1525 Robson St., Vancouver – $62+ million – Residential land, sold by Logan Faith Ltd. to GWL Realty Advisors.
8. 590 Ebury Pl., Delta – $62+ million – Industrial, sold by Hallmark Holdings to Beedie.
9. 20449 Park Ave., Langley – $53+ million – New apartment, sold by Quarry Rock Developments to CAPREIT.
10. 8061 Lougheed Hwy., Burnaby – $53+ million – Industrial, sold by Sun Life Financial to Canadian Urban.

Kuester said the Crestpoint acquisition in Surrey comprised a new, 428,215-square-foot distribution warehouse leased to retailer Skechers.

Crestpoint acquired the building with an institutional partner. This would be one of the higher-quality freehold distribution-type facilities to trade in a number of years, he added.

“We weren’t involved in this particular deal but I would say it’s institutional-grade, trophy-type distribution space,” he said. “It’s one of these rare institutional-type properties that come up ever so rarely.”

"A bit of a theme" in Top-10 list

He said the Inlet Drive site is situated in an excellent low-density residential node near Coquitlam Centre and two major LRT stations. It is to be master planned and rezoned to essentially create a small community under the Official Community Plans (OCP).

“What you’ll see in the Top-10 list is there’s a bit of a theme. There’s five industrial deals and there’s five residential/land deals,” Kuester observed. “Industrial has held up through this challenging market because people fundamentally believe in the long-term value proposition associated with industrial investment in this marketplace. And I don’t see that ever changing.

“From a residential perspective, we are in a market that is chronically under-supplied.

"As everybody knows, the rental market is under-supplied and as we continue in this cycle the strata market, the condominium market, has essentially been shut down . . . as interest rates start to adjust downward, we’re going to see a lot of pent-up demand come back to the market. The stronger, more prudent developers are positioning themselves today with sites for that recovery in the strata market.

“The sites that are being acquired are generally around urban town centres and they’ll be adjacent, or in close proximity to, transit and amenities.”

Industrial, office, retail and a lookahead

He said the industrial market continues to experience very low vacancy (currently about 1.4 per cent) despite a record amount of new inventory entering the market.

“People are watching office and I expect a bounce-back from office. There’s no bid to speak of for office product today," he observed. "There are some retail transactions pending that are interesting and we do have a strong retail market here.

"Vacancy rates are low, demand is strong from an occupier perspective and supply from an investment perspective is extremely tight. When something does come to market, it is very aggressively bid." 

Kuester said institutional investors and REIT capital have essentially hit the sidelines. That started in the summer as interest rates rose and investors couldn’t quite fund their way to the valuation model required. He said fundamentals became compromised by the interest rate hikes. 

"As we head into 2024 I have to say I’m feeling excited and I need something to be excited about as we’ve endured 18 months of a really challenging marketplace,” he said.

“I really do believe that we seem to be beyond peak interest rates, peak inflation," though he believes the economy could remain soft. "I think there’s enough capital and there’s light at the end of the tunnel that there’s going to be a turn in this market this year.

"I think it’s going to come with a couple of big transactions that just basically sort of give the market that kind of confidence and that little bit of a shot that we’re turning the corner.”