March 29, 2005

Shortage of land could be a problem

Low interest rates driving construction

By Cheryl Mah

DCN correspondent

The industrial, residential and commercial sectors are “firing on all cylinders”, according to some of Vancouver’s leading real estate executives.

Three industry experts offered their insights into the major trends and opportunities in the Vancouver real estate market at a sold-out seminar at this year’s B.C. Construction Show.

They all cited a strong real estate market, buoyed by factors such as low interest rates, healthy interprovincial migration, a low unemployment rate and the 2010 Winter Olympics.

But they also noted concerns about rising construction costs and labour shortage.

Describing it as an “exciting time” for the industrial sector, Lee Blanchard, associate vice-president of Royal LePage Commercial, said sale and lease activity is extremely strong and he expects that trend to continue throughout this year and next.

“We haven’t seen it this brisk in many many years,” he said, noting all the larger markets in the Greater Vancouver area are experiencing low vacancy rates.

“The Lower Mainland vacancy rate is hovering around 2.0 to 2.5 per cent. That’s the strongest in the country.”

Blanchard expects strong growth particularly in Surrey and Langley driven by pent up demand by manufacturers and strong resource sector and port related growth.

While the overall prognosis is for an active sector, shortage of land in the short term will be a problem.

“And of course we’re not insulated from construction costs and labour shortages,” he added.

Cameron Muir, senior market analyst, Canada Mortgage & Housing Corporation, echoed the same concerns in his highlight of the residential sector.

“One of the big concerns today for most builders and developers is building costs. The other is labour supply,” he said.

Wages for construction workers have been flat for many years, but Muir stressed they will rise over the next couple of years as demand continues to grow.

“We’re going to see those wages bid up and they’re going to add to the cost of housing overall in Vancouver,” he said.

First-time homebuyers and investors along with low mortgage rates continue to drive the resale and new construction markets.

“Construction activity particularly condos have ramped up substantially but inventory is still at near record low levels,” said Muir.

He dismissed the “stubborn rumour” of a housing bubble in Vancouver.

“When you look at the total supply, there’s little inventory out there. So the risk of this housing bubble — that we’re going to see some drop in demand and prices are going to fall is really fictitious,” he said.

About 11,000 condo units are currently under construction in Greater Vancouver with 78 per cent of those units already pre-sold.

Single housing starts last year were 19,000 units and 14,000 units for multiple starts.

Muir forecasts single-family homes to reach 20,000 units and 14,500 for multi-units in 2005, although he believes market demand is much higher.

“But I don’t think there’s enough capacity to build that in terms of available land and because time between conception of a project and completion is much longer today than it was 10 years ago,” he said.

In the commercial sector, last year saw the highest absorption in a decade with office building vacancies at a premium in Vancouver’s best buildings.

“Absorption was primarily concentrated in triple-A and A class buildings,” reported Jeff Lim, vice-president, leasing, Bentall Real Estate Services.

“Overall, there are not a lot of new buildings planned, so vacancy rates will continue to decrease. The trend has shifted from a tenant’s market to a landlord’s market, especially in the triple-A buildings.”

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