Collier's Greater Victoria Apartment Investment Overview
Oct 01, 2012
(News Release) VICTORIA – Victoria’s overall commercial real estate market, specifically the apartment market segment, continues to demonstrate a sustained healthy level of momentum to-date in 2012. Driven by a continued historically low interest rate environment, as well as an abundance of capital in the hands of both investors and lenders, demand for apartment product remained at consistently high levels; however, Colliers International believes that overall return, or capitalization rate levels, have reached the lower-end of market tolerances.
Vacancy
All signs continue to point to moderate upward pressure on vacancy rates. The overall vacancy rate reported in CMHC’s Spring 2012 Rental Market Report was 3.5 per cent. It is a widely held perception amongst apartment owners and managers that this rate is generally a conservative estimate. Rental rates for the 12-month period ending April of this year rose 1.6 per cent over 2011 levels, while the legislated rental increase for 2012 was set at 3.8 per cent.
Forecast
They expect to see more apartment investment product delivered to the market by year-end 2012 based on three market dynamics: an aging private ownership demographic, a desire to realize significant value increases as a result of today’s demand market environment, and a continued abundant supply of mortgage financing.
They also expect to see delivery of newly constructed rental product to the market for the first time in many years in the form of the Hudson Mews development, adjacent to the Hudson redevelopment in Victoria’s north downtown quadrant. Construction has commenced on 120 units that will be placed on the market as stratified product with a rental horizon of 10 years. Delivery of the completed development is scheduled for February 2014.
As to vacancy levels, they anticipate only a moderate increase by year-end to approximately 4.5 per cent given the strong employment fundamentals associated with the Federal Government shipbuilding contract, a sizeable portion of which will be completed by the Washington Group’s local subsidiary, Victoria Shipyards.
Significant Market Transactions
Over the last few years, Lower Mainland-based investors have turned their attention to the Victoria market in an attempt to secure quality product at returns above those prevailing in Vancouver’s highly competitive market. Given the stable and secure multi-residential market in Greater Victoria, they have witnessed two significant transactions that are of note; namely, the sale of the Camosak Manor Apartments in the Rockland district of south Victoria, as well as the Churchill Apartments in the 700 Block of Yates Street.
1. Camosak Manor sold to a Vancouver-based private investment firm in March of this year for $32.2 million, representing a 4.0 per cent capitalization rate and an unprecedented price-per-suite of +/-$260,000.00. It is also worth noting that, in addition to suite rental revenues, there is a significant annual income attached to an array of communications equipment installed on the roof of the subject given its prominent elevation and the per-suite-price has been adjusted accordingly, based on the reported income.
2. The Churchill Apartments is a 40-unit plus ground floor retail retrofit of a heritage building located mid-block on the south side of Yates Street in downtown Victoria. This complete makeover sold in May of this year for $15.2 million, representing a capitalization rate, for the residential portion of the building, of 4.75 per cent. However, an accurate per-suite price could not be derived without factoring in the income flowing from the Commercial Retail Units (CRUs). This property also sold to a private Vancouver-based investor with a historical ownership presence in the Victoria apartment market.