Anita Huberman, chief executive officer of the Surrey Board of Trade, stands outside a commercial building that takes up an entire city block and has sat empty since it was completed about 16 years ago, at 14178 104 Ave. in Surrey, B.C., on Thursday November 17, 2016. Darryl Dyck/The Globe and MailDARRYL DYCK/The Globe and Mail
Claire Wyrostok, owner of popular Vancouver vegetarian restaurant Black Lodge, wonders how long it will be until Vancouver's hot real estate market pushes her out of business. In the four years that Ms. Wyrostok has been at her current location, on Kingsway just off Fraser Street, many of the buildings in her strip have been sold and property values have more than doubled. Since Ms. Wyrostok's three-year lease came up for renewal in March, she says the landlord is allowing her to rent only month to month.
"Every day I don't know if I am going to get a notice with 30 days to get out," Ms. Wyrostok says. "Our business is done," she adds. "You develop a business to make it bigger, but we can't expand, and we can't sell our business. Our business has no value on paper, because the asset is the lease."
While the residential real estate market in Vancouver is cooling, sales of commercial properties in the region have skyrocketed. The Re/Max Commercial Investor Report says there was a 94-per-cent increase in the total dollar value of Lower Mainland sales in the first half of 2016 compared with the first half of 2015, to $7.1 billion from $3.7 billion. The number of commercial property sales in the first half of 2016 was 1,464, compared with 1,138 in the same period last year.
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And some, including Tony Letvinchuk, managing director for Macdonald Commercial Real Estate Services, believe that the foreign-buyer tax on residential purchases will play a role in driving the market, which is generally perceived as a balanced mix of local and foreign buyers.
"There's no question that the additional 15-per-cent property purchase tax will motivate foreign entities – being those who are not Canadian citizens or permanent residents – to consider purchasing commercial properties located in Greater Vancouver, where such transaction tax does not apply," he says.
The chief factor driving interest in commercial properties is the low interest rate. It makes it more affordable to hold land, which is partly why the sale of developable land represents the biggest share of the market, says Paul Richter, director of commercial property consultants Altus Group. Empty lots or buildings ripe for multifamily residential redevelopment are the biggest draw, especially if located near a future transit corridor.
"We certainly haven't seen the dollar volume and number of deals this high ever. I've been doing this job since 2002, and it's never been busier. Even in 2007, [before the financial crisis], it was not anywhere near as busy as this."
Like commercial markets in many cities, offshore money was playing a big role for some time prior to the tax, says Moojan Azizi, managing director of Re/Max Commercial Advantage. He also anticipates an increase.
"Buyers are typically private buyers, a lot of offshore, and whether that's increased because of the tax, I don't have the stats yet. But logic would say it's most likely, because paying [an extra] 15-per-cent tax on residential compared to a commercial property could be a matter of millions of dollars … I know for a fact that offshore money has been pouring into commercial for last few years. That was happening already. But we do anticipate an increase."
Land speculation is creating concerns for some residents of Vancouver and the surrounding communities. On a tree-lined boulevard in Surrey, B.C., for example, locals have noticed that a property that takes up an entire city block has sat empty since it was completed about 16 years ago.
The building at 14178 104 Ave. has 275,000 square feet of commercial space, and it sits on a lot of more than 1.4 hectares. Early on, it was called the Asian Centre, and its orange-brick-and-glass façade has details that reflect its intended use as an Asian community hub, where vendors and arts and culture groups would come together.
However, its Taiwanese investors pulled out as construction costs grew, and the building was sold, then went through a series of failed purchase negotiations and, eventually, ended up in the hands of a Tucson businessman named Donald Pitt. Mr. Pitt only wants to deal with a single tenant, according to his real estate agent and asset manager, Ron Emerson.
"He's owned it for a long time, and he believes in its value. So we just continue to look. If someone offered him the right number, I think he would sell it."
An empty building of that size is a blight on the business community that relies on every square foot of floor space to build quality jobs, says Anita Huberman, chief executive officer of the Surrey Board of Trade. Also, it skews the city's vacancy statistics, and it just isn't realistic to hold out for a single tenant for a building of that size, she says.
"It is a building that has so much potential, and it's just sitting empty. It could even be a convention centre, which Surrey needs. We are really lacking in that infrastructure. And on a light-rail corridor, it could be one of the showcase pieces for our city."
Kerry Gold