Three weeks after we suggested that the Vancouver housing bubble had popped in the aftermath of the implementation of the July 25 15% property tax in British Columbia targeting the Chinese free for all in Vancouver real estate, we got confirmation of that last week when we reported that only one word could describe what has happened to Vancouver housing in the past month: implosion.
Zolo, a Canadian real estate brokerage, which keeps track of MLS home sales in real-time and reports prices as an average rather than the “benchmark price”, showed as of last week a major correction underway in most Metro Vancouver markets. According to the website, the City of Vancouver currently has an average home price of $1.1 million, down 20.7% over the last 28 days and down 24.5% over the last three months. The average detached home is $2.6 million, down 7% compared to three months ago.
The number of transactions has likewise slammed shut: while August is typically one of the slowest months for real estate transactions, MLS sales data from the first two weeks of the month shows what many have been hoping for during the last few years of escalating prices. According to MLS listing data, there were only three home sales in West Vancouver between Aug. 1 and 14 this year, compared to 52 during the same period last year. That’s a decrease of 94%.
In short, the Vancouver housing bubble has poppsed, and not surprisingly the "smart money", which rode the bubble all the way up, has duly noticed, and wants out. Immediately.
As Bloomberg reports, the Ontario Teachers’ Pension Plan is quietly seeking buyers for a minority stake in its C$4 billion ($3.1 billion) real-estate portfolio in Vancouver, including office towers and shopping malls, according to people familiar with the matter.
Cadillac Fairview, the real-estate unit of Canada’s third-biggest pension fund, is looking to raise about C$2 billion from the sale. Cadillac Fairview has hired CBRE Group Inc. and Royal Bank of Canada for the sale.
According to Bloomberg, Cadillac Fairview is the latest pension group seeking to reduce its holdings in the Vancouver commercial market, where prices have reached record highs amid an influx of foreign cash even as new supply drives up vacancy rates. Ivanhoe Cambridge and the Healthcare of Ontario Pension Plan are seeking about C$800 million for their office towers in Burnaby, British Columbia, just outside of Vancouver.
The Cadillac Fairview portfolio, which hasn’t yet started marketing, includes 14 properties in downtown Vancouver and Richmond, with some of Canada’s largest shopping centers, office towers, and historic buildings up for grabs. The assets include a portfolio of waterfront properties including Waterfront Centre, a 21-story tower on the harbor built in 1990; the 238,000-square-foot PricewaterhouseCoopers Place; and The Station, a historic property built in 1912 that serves as North America’s largest transport hub, currently pending approval for an added office tower.
The liquidation has a whiff of panic as some of the country’s biggest retail assets are also in the mix, such as the Pacific Centre, a downtown retailer with 1.6 million square feet for which Cadillac Fairview submitted a proposal this year to expand. It’s the third-most profitable shopping mall in Canada, according to brokerage Avison Young, with C$1,599 in sales per square foot Bloomberg adds. The center also contains eight office towers of two million square feet, including 701 West Georgia and the HSBC building.
In recent years, alongside the plain vanilla housing bubble, commercial real estate soared too, as demand for Vancouver offices sent prices of properties to record highs in recent transactions, including the purchase by Anbang Insurance Group - another notorious Chinese offshore buyer - of the Bentall Centre.
Meanwhile, a warning sign had emerged even before the July property tax hike as the vacancy rate in the city rose to a 12-year high of 10.4% as of June 30 as tenants absorbed 1 million square feet of new space since the same time last year, according to Avison Young.
It is only set to get worse, because in a rerun of what happened to the Alberta office market in early 2015 after oil cratered, additional space is set to flood the market, with six office towers under construction for delivery as soon as this year totaling about 802,700 square feet, and 10 buildings proposed for the city, including Cadillac Fairview’s Waterfront Tower, according to Avison Young’s mid-year 2016 report. Despite the vacancy, rental rates for the best quality assets in Vancouver are the highest in Canada and some U.S. cities such as Chicago and L.A. at about C$30 a square foot, Avison Young said.
And so, Vancouver - after enjoying years of unprecedented upside in both residential and commercial real estate - is on the edge of full blown, freely falling hangover, just like the one the OECD prudently warned about three months ago, when it said that a "disorderly housing market correction" notably in Toronto and Vancouver, is the biggest threat to Canada’s economy, one which "would damp residential investment and private consumption, and could threaten financial stability." One can now add commercial investment and consumption to that list as well.
In the coming months, if not weeks, we will find out just how accurate the OECD's gloomy forecast was.