Vancouver’s Broadway Plan received approval from city council on June 22 and came into effect on Sept. 1.
The 30-year redevelopment strategy to infuse live, work and play opportunities in the Broadway area was in the making for over a decade; its launch coincided with a tumultuous economic shift. Despite the current climate, however, the Broadway Plan will play a significant role in Vancouver’s economic future.
Interest rates will invariably be a key consideration for developers.
To date, 2022 has proved challenging, with the Bank of Canada increasing targets for the overnight rate since March. In April, the target sat at one per cent. Currently, the target rate sits at 3.75 per cent.
While the economy responds, the bank anticipates inflation will fall to approximately three per cent in late 2023 and two per cent in 2024.
Nevertheless, all parties involved with the Broadway Plan need to consider the implications of a market with interest rates in flux, including the scale of urban revitalization through redevelopment, job creation and the transformation of more traditional commercial space.
While challenging, interest rate increases bring a necessary shift for the economy
Interest rates are impacting the decisions developers and landowners involved with the Broadway Plan are making. Borrowing costs have soared and it is becoming increasingly difficult to pursue affordability.
If inflation comes under control, it would be helpful for developers. Yet, considering only one aspect of the overall economic picture is not realistic.
“While interest rates rising presents an unexpected situation, the huge increase in construction costs has also been weighing on the market for a year or longer,” noted Adam Jacobs, senior national director of research at Colliers.
Non-residential construction costs rose by 2.1 per cent in the third quarter of 2022, while residential building construction costs increased by 2.5 per cent, per Statistics Canada data representing quarterly change.
Construction costs began to rise due to supply chain challenges amid the pandemic and inflation is placing further pressure on the sector.
The economic situation today is creating winners and losers.
Cash-rich investors or developers who refrained from entering the market over the past two years and are not reliant on borrowing capital may now have the ability to make the numbers work for long-term projects.
“I don't view rising rates as necessarily a bad thing. Things are balancing out between key players entering the market and pursuing opportunities right now,” Jacobs said.
When interest rates rise, it helps the Canadian dollar, which has lost significant value during the last year.
“That has partly contributed to why costs are so high because we have to import from Europe, Asia and the U.S., and the Canadian dollar has decreased in value.”
A stronger Canadian dollar may help control some of the increased costs associated with interest rate hikes.
Redevelopment and the long-term vision for Broadway
The Broadway Plan addresses the redevelopment of the Broadway Corridor. Today, this corridor consists largely of local retailers, low-density residential and service-oriented commercial properties.
Susan Thompson, associate director of research at Colliers, discussed in a recent report on the Broadway Plan how an “all-encompassing vision” is needed to “create a dense, vibrant, walkable, livable and desirable community that incorporates diverse housing options, activities, entertainment and employment.”
Bigger-picture redevelopment of the area is needed and Vancouver already has an appetite for it.
“There’s going to be more transit and an increasing focus on sustainability instead of sprawl,” Jacobs explained.
The Broadway Plan’s vision to link transit to the University of British Columbia (UBC) via the Millennium Line extension will allow for connectivity between the City of Vancouver and the Broadway Corridor, primed to become Vancouver’s second downtown.
The Broadway Plan also aims to create up to 30,000 additional housing units to accommodate both the city’s anticipated population growth and increased immigration to the region.
“There's a lot of interest in mixed-use development for the Broadway area - not exclusively condos, but complete communities. There's going to be new office space, services and retail components, and possibly hotels,” Jacobs said.
There is no ideal course of action for developers planning to launch projects in the area; the case will differ depending upon the product and term of development.
A strong job market demands office space and creative use
The Canadian job market remains strong with unemployment down and 108,000 positions filled in October.
The unemployment rate in B.C. hovered at 4.2 per cent for the month and labour shortages are making it difficult to hire employees.
Yet, the office vacancy rate for the Greater Vancouver Area remained relatively stable in October at 5.9 per cent.
“There's a need for more office buildings and demand within the job market is strong,” said Jacobs. "Areas likely to use an office and with some of the biggest growth are legal, technology, accounting and government professions.”
Creating a 15-minute city lends itself to sustainability, reducing commute times and reliance on personal vehicles. With the Broadway Plan, there could also be more creative use of space in the warehouse market.
“Micro fulfillment might be an asset we see people exploring in the Broadway Plan,” noted Jacobs.
A one-size-fits-all approach to development does not fall within the Broadway Plan.
Innovators with a long-term vision for growth along the Broadway Corridor may now have the ability to assess options or risk losing out as interest rates continue to cause shifts within commercial real estate.