Market Conditions
Market Spring 2008
Victoria’s economy continues to prosper.The unemployment rate increased slightly to 3.3% and remains as one of the lowest rates in Canada. Inflation in February was 0.5% over the previous year and compares with the national average of 1.8%. Victoria International Airport shows an overall increase 7.9% in passenger traffic with increases in all sectors over 2006. Regional building permits are about 11% less than the comparable period last year, which had experienced a 17% increase over 2006. Residential real estate sales continue to be active with the six month average selling price for a single family dwelling being $597,176 up slightly on the six month average. Condo sale prices are slightly less than the six month average. The high -end projects including the Bayview, Aria and Dockside Green continue, although it is to be noted that a number of multi-family projects have been shelved and that some projects have revised their pricing. This will reduce the risk of oversupply. Notwithstanding some commercial projects being shelved, values have remained strong for the beginning of 2008, and there continues to be a greater demand for investment properties than supply. As noted before, there is a lessening of interest by US buyers. Low commercial mortgage rates are allowing end users to compete more aggressively than investors across all market types. Commercial investment properties are generally selling in the range of 5.5% to 8% capitalization rates. Apartment buildings are typically in the range of 4% to 6%.
The low vacancy rate, in Victoria's warehouse/service market has eased significantly, but still remains tight. Our vacancy review for March indicates an increase in available space from the previous quarter by about 50,000 sq.ft. The total warehouse vacancy is now about 190,000 sq.ft. and is effectively more than 2%. The Capitol Business Park in Keating X is planned to add another 188,000 sq.ft. to the market in 2009 at an asking rate of $16.00 psf/net. Hull's Business Park in Langford has 5,000 sq.ft. remaining from a total of 40,000 sq.ft. Total build out on this project is planned to be over 200,000 sq.ft. The limited availability of developable industrial land has resulted in land values in excess of $1M per acre and consequently the risk is relatively high for any developer.
Retail
From the retail perspective, our Tenants report that sales for the first quarter are flat or slightly off compared to last year. There is optimism that the record 211 ships and 400,000 passengers expected for the season will improve sales. These cruise ships are a vital element to the success of Victoria's tourist strip. Other tourist traffic from the US is clearly lass than previous years, and it is thought that the marginal tourist market is most affected. Higher end shops still benefit from the tourist business, although they appear to be focusing more on local business and visitors from BC. It is hoped that the revitalized Crystal Gardens, which increases the Victoria Conference Centre's space to 73,000 sq. ft., will enable Victoria to attract larger conventions. As noted in previous reports, availability of labour continues to be a significant challenge for all retailers and business in Victoria. The re-leasing of the Convention Centre has brought a number of tourist locations to market. We are pleased to report that there are no available spaces for lease on lower Government Street, although we have noted that a number of vacancies have emerged on Wharf and Yates streets.
Office
There has been a minor decrease in vacancy in Class "B" & "C" office space which continues to experience relatively high vacancies at more than 5%. Our fourth quarter review of the vacancy at the end of December, indicates about a 5% decrease in the vacancies for these classes. New projects in Victoria West and in the downtown have been the primary absorbers of office space demand in the downtown. The class "A" space vacancy level is tighter at about 1%.
Investment
The market is very tight with relatively few investments for sale, cap rates are in the region of 5.5% (apartments) to 8.5% depending on quality of tenant and location.