Earlier this year, it was predicted that real estate investment sales figures were going to reach record breaking heights in Vancouver. When residential real estate sales figures were released in September, it seemed as though sales didn’t quite reach the heights anticipated. However, commercial real estate sales in 2018 are well on their way to surpass last year’s total of $11.75 billion CDN, according to CBRE Ltd.
Even with these robust numbers, analysts are being cautious primarily because of our current climate of political uncertainty, affordability issues and the increasingly more expensive development costs. Analysts are noting that buyers and lenders are taking a much more cautious approach to all types of property investments.
At the opening breakfast of the Vancouver Real Estate Strategy and Leasing Conference, CBRE Executive Vice-President, Paul Morassutti, echoed a sentiment now prevalent amongst top economists: A decade of cheap debt which was made available as a stimulus to the economy following 2008’s financial meltdown has overstayed its welcome, and needs to end.
“Global debt now stands at an all-time high,” Morassutti stated. “After a decade of debt-fuelled growth, the party may be over and the hangover [is] just getting started.”
“After a decade of debt-fuelled growth, the party may be over and the hangover [is] just getting started.”
Though there’s been a lot of discussion about the immediate effects of rising interest rates, and the possibility of interest rates being raised again in December, the truth is that asset values are still going up. Which is why investors continue to invest in Vancouver’s market. As expensive as property is in this Western city, investors continue to evaluate their property acquisitions as a good long-term bet.
“This capital is becoming more selective, underwriting is strict and deals are taking longer to complete,” Morassutti said. “We see capital flowing into assets with compelling growth potential — either rental growth, value-add or redevelopment potential.”
And while higher interest rates make it more difficult to acquire capital — and has a cooling effect on the economy — it does give banks and lenders more wiggle room when the next economic crisis hits. Morassutti hopes that investors will continue to base their decisions on sound data and cold logic rather than on irrational exuberance.
“There’s any number of things that could tip the market,” he stated. “Sometimes you do have to just block out the background noise and focus on the fundamentals.”