Real estate forum examines dilemma as city debates future of rental accommodation
Derrick Penner
Sun
It is a Vancouver conundrum: Real estate investors will pay fat prices to buy rental property, but won’t pay to build it.
Greater Vancouver land prices are too high, construction costs too onerous, and despite astronomically high prices, rents are still too low to justify an investment in new supply, an industry forum heard Wednesday.
Vancouver city council is debating a moratorium on demolition of existing apartments to preserve units that are left.
Concert Properties CEO David Podmore told one session at the annual Vancouver Real Estate Forum that developers are finding it easier to build purpose-built rentals elsewhere. His firm is a partner with the Ontario public-sector pension OMERS in a $650 million apartment project.
In downtown Toronto, Podmore said, developers can buy land for $30 to $35 per buildable square foot, build apartments for $150 to $155 per square foot, and charge monthly rents of $2.10 to $2.25 per square foot, which earns a six-per-cent return.
In Vancouver, a developer would have to pay more than $100 per square foot for land and $250 to $260 per square foot to build, yet could only charge $2 per square foot for rent for the same building.
Greater Vancouver monthly rents would have to climb to the $3-per-square-foot range to justify new development, according to John Purcell, senior vice-president and portfolio at Bentall Investment Management.
“[Vancouver] is poised for rent growth, but not nearly enough to justify new development on an economic basis.”
Still, buyers are scrambling to buy existing Vancouver properties, even though they earn returns of five per cent at the high end to 2.75 per cent at the low end, David Goodman, of MacDonald Commercial Real Estate Services, said.
Goodman added that buyers these days are typically large, such as Toronto-based TransGlobe Property Management, or real estate income trusts such as Boardwalk and Mainstreet.
Goodman added that many buyers accept such low rates of return because they are counting on significant rent increases when units change tenants.
He noted Vancouver rents have increased 21 per cent over the last decade. The prices to buy suites, however, have doubled over the same period.
“In our view rents are moving in a catch-up mode,” Goodman said, and are due to increase 10 per cent, on tenant turnover, over the next 12 to 18 months.
However, government intervention will needed to encourage construction of new rentals.
© The Vancouver Sun 2007