How much longer can values keep going up at this rate? This is a question we are asked all the time, even by savvy and experienced investors who know the Vancouver market well. As we have documented before, there are numerous factors that have driven capitalization rates to an all-time low, many of which are external to the local market.

A trend we have noticed in recent sales however, is that many of the sellers have only held the assets for a few years.

To get a glimpse of what kind of gains these sellers are achieving, we took a look at a handful of sales in each asset class over the past two years. The criteria was as follows:

• Apartment, retail and office properties (5 each) that sold since September 2011 over $5 Million
• Properties that were acquired less than 10 years before they were sold and did not experience significant capital expenditures

From this sample set of 15 sales that took place during this period, the average annual rate of appreciation is displayed below:

Some observations taken from this sample of sales activity:

• Average property was held for 5.5 years and then sold.
• The annual appreciation ranged from 4.4% to 13.1%, and averaged 8.6%.
• Notable resales in this survey included: Bentall 5, which was sold by Deka to Bentall Kennedy after 3 years and 10% gain per year. 2450 Ontario Street sold in February 2013 also after 3 years, and also after a 10% annual gain.
• Note that the above data does not even reflect the overall return to the sellers as it does not incorporate the cash flow component of the return during the holding period. While yields have been driven to all-time lows, cash flow has historically been the bigger component of real estate returns. This should be something for all owners and buyers to think about in Vancouver.

This type of resales activity isn’t unexpected in a market that is continually being inundated with capital and buyers, many of whom are new to the market. Interestingly many of the sellers in the above survey are well-capitalized and don’t need the cash, they are simply selling based upon the view that currently achievable values aren’t sustainable in the near term. Our question is (as echoed by our clients): how long can these types of gains last?

In our view, there will be more assets coming to the market as the risks to the provincial and local economic outlook begin to pressure more owners to cash out and realize gains. In most areas, cap rates have no further room to decrease.

Nearly a quarter of condos in Vancouver are empty or occupied by non-residents in some dense areas of downtown, a signal that investors play a significant role in the city’s housing market.

And the city overall has a much higher rate of empty apartments and houses than other Canadian cities, with a rate closer to places like New York and San Francisco at the height of their mortgage crisis in 2010.

Downtown, the rate is so high that it’s as though there were 35 towers at 20 storeys apiece – empty.

That’s the latest discovery that adjunct UBC planning professor Andrew Yan made when he analyzed 2011 census numbers to try to add more information to the contentious debate over whether Vancouver is turning into a high-end resort or offshore investors’ holding tank.

Read more: http://www.theglobeandmail.com/life/home-and-garden/real-estate/vancouvers-vacancies-point-to-investors-not-residents/article10044403/

The City of North Vancouver is currently in the public input stage of their CityShaping initiative, which is a 6-step process that will culminate in the revision of the Official Community Plan to accomodate growth over the next 20-30 years. The City expects to draft an amended OCP sometime in the summer, with adoption by the end of 2013. This comes at an interesting time for the City in the wake of the contentious Onni rezoning at Lonsdale and 13th Ave, which was approved by a slim margin last week.

Potential Growth Areas

Source: City of North Vancouver

What are the potential changes? City staff are proposing a number of land use change scenarios that would impact specific areas. Overall the City is expecting an additional 8,000 units built by 2041. Here are few areas being contemplated for increased density:

• Central Lonsdale Town Centre – Potential changes would consider the area encompassing the 100 & 200 blocks east and west of Lonsdale from 13th Street to the Highway, the addition of up to 350,000 square feet of primarily residential development Harry Jerome precinct, the maintenance of the Town Centre Land Use designation (13th Street to 17th Street) , with provisions to increase this with density bonuses; an increase to the permissible density in the Urban Corridor Land Use designation, and the creation of a new land use designation on Lonsdale north from 17th Street to Highway #1.
• East Third Street – Apartment and/or townhouse developments could be appropriate for some locations. A number of property owners in this area have approached the City to discuss density changes in light of the anticipated reconstruction of Low Level Road and the proposed expansion of the Richardson International grain terminal. The changes also include potential increase in permissible density along the East Third Street frontages, and an area bounded by Low Level Road St, Patrick’s Avenue, 2nd Street, and St. David’s Avenue, Moody Avenue.
• Mahon Park Node  – an area south and east of Mahon Park could be considered accommodate townhouses, or medium density housing catering to families; it is currently single family.

Other points of discussion include increasing density in the Lions Gate Hospital Precinct, gently densifying areas currently designated R1, and not changing densities in the Lower Lonsdale area.