Why it’s worth investing in commercial real estate in British Columbia’s Lower Mainland

Located on the southwestern side of British Columbia, the Lower Mainland is one of the fastest-growing regions in the country. If you are looking for a venture that has the potential to yield high returns, consider commercial real estate in the area. This handy guide will tell you everything you need to know.

LOWER MAINLAND 101

The Lower Mainland occupies the southwestern pocket of British Columbia, stretching from coast to mountain with a total area of over 14,000 sq. mi. Its urban, coastal, and rural valley areas give Lower Mainland diverse environmental economic opportunities. Urban centers in the region include Vancouver, Surrey, Port Coquitlam, Abbotsford, and Chilliwack. These communities are solid economic hubs with booming sectors and industries.

Notable industries

The Lower Mainland is a vital economic and agricultural resource in British Columbia and beyond. Apart from being a goods producer, the region is highly competitive in forestry, mining, utilities (oil and gas), as well as construction, and manufacturing. It has also established itself as a prime location for filming, entertainment, technology, and digital media. Vancouver, in particular, has become an entertainment and tech hub over recent years. Animation studios, television production, and biotechnology have carved notable spaces in the city’s local economy.

The key sectors in the Lower Mainland are: advanced manufacturing, aerospace, agri-food and seafood, clean technology, digital media and entertainment, information and communication technology, and life sciences.

Accessibility

The development and economy of the Lower Mainland are attributed to its strategic location. First, it shares borders with the United States of America to the south; Abbotsford, the closest city to the border, is roughly two hours away from Seattle in Washington State via I-5 S. Second, several transcontinental highways and rail routes pass through the region, making land transportation easier. Third, the Lower Mainland has an established airport network, with Vancouver International Airport and Abbotsford International Airport opening the region to both domestic and international connections. Fourth, sea ports dot the Lower Mainland coastline.

Chief among these is the Port of Vancouver. Located along the shores of Vancouver Harbour, it is the largest port in Canada and facilitates trade with over 170 economies across the globe.

Diverse population

The Lower Mainland has a population of approximately 3.2 million people as of 2021 – that is roughly 60% of British Columbia’s total population. It’s one of the most diverse regions in the country, with residents of European, Asian, Latin American, African, Middle Eastern, and Aboriginal descent. The Lower Mainland’s diversity is reflective of its desirability as a place to live and work.

With this cultural diversity comes a wide array of practiced religions and spoken tongues: Mandarin is the second most spoken language in the Lower Mainland after English, while Sikhism is the second largest religion after Christianity. Nearly half of the population, however, don’t practice any religion.

Part of the Lower Mainland’s cultural and ethnic fabric are its First Nations communities, of which there are 45 spread across the region. These include the Musqueam, Tsleil Waututh, Squamish, Sto:lo, and Tsawwassen. As of date, their total population numbers at over 24,400 people. They are mostly involved in the manufacturing, trade, and finance sectors.

LOWER MAINLAND COMMERCIAL REAL ESTATE: 2022 SO FAR

Before you start looking at potential investment properties in the Lower Mainland, let’s take a look at how the local CRE market has fared since the start of 2022.

First quarter

Lower Mainland’s CRE market started 2022 on the right track, with the first quarter of the year outperforming the previous year. Data from the Real Estate Board of Greater Vancouver (REBGV) for Q1 of 2022 reports that there were 595 commercial property sales in the area.

Office and retail sales made up most of the activity with 219 properties and a dollar value of $624 million recorded, although these figures were lower than Q1 2021. Meanwhile, there were 206 commercial land sales with a total dollar value of $2.085 billion, which represent 63.5% and 177.5% increases from last year, respectively. Industrial and multi-sales rounded up the total CRE sales activity in Q1 2022. Approximately $3.7 billion was made, which was a sharp 32.9% year-on-year increase.

Second quarter

In Q2 2022, CRE sales slowed down. 485 transactions were recorded from April through June – a 34.3% year-on-year decrease. Over $3.2 billion was made from these deals, 12.2% less than last year. Andrew Lis, REBGV’s economics and data analytics director, attributed the slower pace to inflation.

More land sales were recorded than the previous quarter: 221 transactions, in fact, but with a lower dollar value of $1.6 billion. The land sector’s consistent performance is largely due to the continued demand for housing in the region. Office and retail sales saw 143 deals push through, with a total dollar value of $649 million. The industrial and multi-family sectors recorded 93 ($542 million) and 28 ($404 million) sales, respectively.

Compared to Q2 2021, this period in the Lower Mainland CRE market showed decreases across the board.

Other key takeaways

At the national level, Vancouver is still an investor favorite, being the second most preferred market for CRE investment in Canada, trailing behind the Greater Toronto Area and followed by Ottawa.

For the first half of the year, Greater Vancouver recorded a total investment dollar volume of $8.99 billion, which represents an almost 24% year-on-year increase. About 52% or roughly $4.68 billion of this is land investment. Industrial assets were the second most coveted among investors, accounting for 292 deals (over $1.65 billion) in the first half of 2022.

Furthermore, October 2021 to March 2022 was an especially strong period historically for Vancouver CRE. 1,448 deals were made, equivalent to a total dollar volume of $10.1 billion.

Notable CRE transactions

• 4221 Mayberry Street, Burnaby – Constructed in 1982, it’s a 25-storey apartment building in Vancouver that contains 181 residential units. It was sold in June 2022 for $54.42 million.

• 19500 56th Avenue and 5533-5555 Production Boulevard – This 4.76-acre of industrial, commercial, and investment (ICI) land in Surrey was sold by Revolution Equipment to Metro Vancouver for $38 million last June. Included in the property is a 32,473 sq. ft. warehouse.

• 51 East Pender Street, Vancouver – This retail property in Chinatown is the Wing Sang Building, built in 1889. It was purchased by the Chinese Canadian Museum Society of British Columbia for $30.78 million in June 2022. Prior to the sale, it used to house several offices as well as an art gallery. Its new owner intends for the building to become the new home of the Chinese Canadian Museum.

In a nutshell, Lower Mainland commercial real estate provides tremendous economic opportunities for communities within and around the Lower Mainland despite the cooling down of the market.

WHY IT’S WORTH INVESTING IN LOWER MAINLAND COMMERCIAL REAL ESTATE

Lower Mainland is British Columbia’s CRE investment gem that can offer you an untapped economic opportunity.

Investors, solopreneurs, and corporations from outside the Province are investing in British Columbia, including the Lower Mainland, because of the quality of life and wealth of natural resources and emerging economic sectors. Other facilitating factors include lower-interest mortgages and independent financing for investment options.

The economy of the Lower Mainland is diverse, with several vital industries leading the way to economic development and employment. When you invest in commercial real estate in the Lower Mainland, you also tap into the following:

1. Booming IT industry: Information technology is changing the face of commercial realty with more and more office and tech sector players relocating to British Columbia. As significant infrastructure growth continues and major technology firms move in, thousands of jobs are created.

   From a CRE investor’s point of view, as IT in this region develops, you’ll see an influx of tech start-ups and Silicon Valley extension offices coming in to house their offices in CRE spaces, effectively increasing property leasing or purchase demand. And this move has already started. As of date, information and communication technology is the sixth largest sector in the Lower Mainland, with over 56,000 jobs and Vancouver as the center of activity.

2. Skilled and highly educated workforce: The Lower Mainland is home to over half of the province’s total population, not to mention education centers scattered across the region. Small to medium enterprises and large corporations are not the only entities that stand to benefit from such a sizable and educated workforce – CRE investors, too, especially if you’re planning to build an extensive portfolio in the Lower Mainland.

3. Access to major thoroughfares and transport networks: Just as it is important in residential real estate, location is one of the important factors you should consider when investing in commercial real estate. And fortunately, the Lower Mainland is smack dab in the middle of air, land, and water trade routes. This strategic location is especially important for the long-term outlook of your CRE investments, as property values (as well as your tenants) are tied to the local economy’s prosperity.

4. Plenty of potential: As needs continue to diversify as the Lower Mainland’s population grows, so do uses for various CRE properties. As of the moment, there is a strong demand for housing, which means plenty of opportunities in the multi-family and residential land sectors. As a neighborhood becomes more established, demand for commercial and mixed-use spaces increase. If you plan your CRE investments well, you can build a robust and profitable portfolio that will stand the test of time.

TYPES OF COMMERCIAL REAL ESTATE PROPERTIES IN THE LOWER MAINLAND

Now that you’re more acquainted with the market, it’s time to search for a CRE property for sale in the Lower Mainland. Below is an overview of commercial real estate available in the region.

1. Multi-family: Multi-family properties are buildings that can accommodate more than one family. Duplexes and apartments are the most common types, although townhomes, condos, and semi-detached residences can also be considered multi-family properties. This can serve as your home, making you a “live-in landlord.”

2. Office: Office buildings are a popular and lucrative CRE class that ranges from single-story suburban offices to skyscrapers. These properties often have multiple tenants, generating several income streams. Compared to other CRE options, office leases are longer-term and, in turn, may pose less risk. Office rentals have three tiers based on finishes, amenities, and rental rates.

3. Retail: Another commercial Lower Mainland realty property type is retail. These properties house retailers, service providers, and food outlets, such as restaurants and cafes. Like offices, these usually have multiple tenants, often with an anchor (e.g., Wal-Mart, Home Depot) that drives traffic to the property. It may also be a stand-alone building housing one business.

4. Industrial: Industrial properties are attractive investment options because of their long-term leasing and low-cost overhead. Examples are warehouses along the highway with ready access to shipping and delivery lines. This offers continuous growth considering the constantly evolving and expanding eCommerce market. Types of industrial (heavy manufacturing, light assembly, bulk warehouse, and flex industrial) buildings likewise vary depending on layout, format, and size.

5. Hotel: Hotel establishments provide a complete suite of services from accommodations, meals, and other services for travelers and locals. These can be chain or independent boutiques and have six further sub-categories depending on their offerings (i.e. gaming component, services, size of rooms, duration of stay, and other amenities.

6. Special Purpose: Special purpose properties do not readily fall into the types mentioned earlier. These commercial properties include amusement parks, self-storage, or bowling and recreational centers.

7. Land: Land is available in three types: agricultural (i.e., farms and ranches), infill (vacant, developed urban plots), and brownfield (previously with commercial establishments). The availability of land depends on the specific market you choose to invest in. For instance, don’t expect to find agricultural land in the middle of Vancouver. What you can do with land also depends on local zoning. But of all real estate investments, land is among the most stable even if you leave it as is.

8. Mixed-use: Mixed-use properties fall into multiple real-estate classes. For example, in urban settings, commercial properties have a supermarket at the bottom with apartment buildings above.

There are a lot of benefits to investing in CRE. First, it offers potentially higher and regular cash flow than dividends and stocks. CRE also hedges against inflation more so than other asset classes. Finally, as hard assets, CRE gives you the ability to place debt on properties which may increase your purchasing power for each dollar of equity.

DON MUNRO: LOWER MAINLAND’S TRUSTED NAME IN COMMERCIAL REAL ESTATE

I’ve been dealing in commercial real estate in the Lower Mainland for over 35 years. In these three decades, I’ve overseen successful agricultural, acreage, commercial, and industrial deals. Whether you’re acquiring or leasing a commercial property in and around Fraser Valley and Vancouver, I can help you identify the best real estate opportunities that are aligned with your goals.

Ready to invest in Lower Mainland commercial real estate? Contact me at 604.817.7338 or send me an email and let’s talk about your CRE investment goals in Fraser Valley and Vancouver.