2022 Victoria real-estate recap and 2023 insights with CBRE Chairman Paul Morassutti and Senior VP Jason Kiselbach

2022 Victoria real-estate recap and 2023 insights with CBRE Chairman Paul Morassutti and Senior VP Jason Kiselbach

Citified’s Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria’s top real-estate and business professionals.


Ten on the Tenth’s December, 2022 segment features Jason Kiselbach, Senior Vice President & Managing Director at commercial real-estate brokerage CBRE Vancouver, and CBRE Chairman Paul Morassutti, based out of Toronto.



Asking the questions is Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE. As a leader in facilitating large-scale commercial real-estate transactions throughout the Capital Region – which include apartment complexes, industrial retail and office properties, and land/development opportunities – Ross and his team are at the forefront of market-leading real-estate transactions on Vancouver Island.



We’re currently seeing big highs and lows in some local markets, but Greater Victoria appears quite insulated. In comparison to the national outlook, can you share your thoughts on the Greater Victoria market during these times of turbulence? What aspects makes Greater Victoria optimistically poised for commercial real estate?

Jason: Historically, Greater Victoria has weathered the storm in times of turbulence and in more recent corrections, better than most cities across the country. Greater Victoria ranks second as a top investment market for Western Canada. Much of Greater Victoria’s volume and potential is anchored by the sector’s fundamentally stable multi-family and industrial properties. With high ownership costs making rental a more attractive option and rents generally on the rise, lenders feel confident lending on these investments. It ranks as one of the lowest concerns among lenders.


Time and time again, we are seeing Greater Victoria come out of these storms without seeing too much negative impact. Well capitalized, institutional and public buyers have previously looked to the West Coast for high value transactions. Often, these transactions in Victoria come at competitive prices compared to Metro Vancouver. We expect to see these investors and occupiers acquire properties here to diversify their portfolios.


What are some trends occurring that are attracting investors to the west coast and specifically Vancouver and Victoria?

Paul: Vancouver and Victoria have historically been some of the most resilient real-estate markets in the world. Traditionally, these cities reflect much less volatility than other Canadian markets and less volatility than US markets. Land constraints help keep values high since bringing on new supply is difficult, unlike many other markets where sprawl can occur anywhere. The west coast also benefits from strong port and global connections, as we witness capital flow from Asia and Southeast Asia.


To get a more micro focus, what are some trends attracting investors to Greater Victoria?


Vancouver and Victoria’s fundamentals are strong. The first is BC’s population growth – the federal government’s latest immigration target is 1.3 million people over the next three years. Historically close to 20% of new migrants end up in BC and Victoria has one of the highest population growth rates. This population growth creates a need for housing, employment space and amenities. The west coast also benefits from the diversity of the local economy, with no single industry making up more than 25% of either GDP or employment. This creates resilience, as we’re not reliant on one industry to create growth and, when some sectors are under-performing, there are usually others that exceed expectations to pick up the slack.


The local high-tech industry has evolved over the past two decades with both Vancouver and Victoria creating a very strong base of companies and talent, especially for gaming, visual effects, life science and an emerging e-mobility sector. Along with the steady flow of multi-family transactions, we are witnessing smaller assets trading. Demand remains high for the existing product and purchasers are also interested in new construction where they believe rents may outperform the current market and will take on leasing risks to do so.


Geographically, Greater Victoria neighbours Vancouver and often will echo similar market sentiment despite its smaller size. Which asset classes are we seeing in Greater Victoria do phenomenally? Which emerging markets, if any, should we keep a pulse on?

Jason: With the growth that is happening in Victoria, we are particularly bullish on multi-family and residential development sites, and continued growth in the industrial sector.  People need a place to live and will continue to require goods which come through warehouses.  

Retail centers in suburban markets have also been performing well with more migration into the suburbs.  These assets, especially ones with discount retailers or consumer staples such as grocery and pharmacy tenants are a good hedge in recessionary times.  


Let’s talk about the office market, arguably the hottest topic since remote/hybrid work became prevalent. How is the office market evolving, what will we start to see companies initiate to bring their workers back? How might this be unique to the west coast versus the rest of Canada?

Paul: Global sentiment around the office market is largely negative as the sector grapples with remote work and a sidelined tech sector. However, the market outlook for office in Canada, and in Vancouver in particular, is much more nuanced. Despite the addition of more new office supply than at any point in Vancouver’s history, Vancouver’s overall vacancy rate is the lowest in North America. NERs, or net effective rent, have largely gone up over the past few years rather than down, especially for good quality products. Vancouver is a favourite location for large US-based tech companies as while these companies are not in expansion mode currently, they are focused on cost control, and that this situation is not expected to be permanent.


The sector has some very real challenges, though, and we expect there to be a significant bifurcation between good quality, richly ‘amenitized’ assets and lower quality assets. How companies cope with remote work strategies is still evolving and we do not expect the dust to fully settle for several years. But don’t believe all the bad hype.


How does the office market fare in Victoria, in comparison to the rest of BC?

Jason: The Victoria office market is performing well. Victoria has a low inventory of office space, especially in the newer buildings that offer the type of amenities tenants are looking for. This means rental rates are holding steady. As our very own CBRE Victoria office is expanding, I remain optimistic and opportunistic for 2023. While some companies pause to recalibrate, we continue to push forward, looking for new office space for our growing sales team. We recently acquired a new team member, Jeff Lougheed, who joined our Victoria office as Vice President this past quarter and will spearhead the leasing division in Greater Victoria.


With the limited supply and next-to-nothing vacancy rate in BC’s industrial market, how does this directly effect Victoria’s industrial supply? With interest rate changes, is there an expectation for the demand to lower? Where is this market heading now, especially with our low vacancy landscape?

Jason: Metro Vancouver continues to be one of the lowest industrial vacancy rate markets in North America and has the least amount of actual vacant square footage available of any city by a significant margin. Occupier demand has been solid so far this year and the industries contributing the most to industrial demand in Metro Vancouver are third-party logistics, manufacturing, distribution, and e-commerce.


Currently, we have over 10 million square feet of industrial supply under construction, which represents 5% of our total market inventory, the highest ratio of any market in Canada. However, a significant amount of product being constructed for rent is being leased ahead of delivery, so it does not represent much relief in terms of vacant industrial supply. We will foresee a continuation of low supply in the environment for the industrial market next year. We expect vacancy to be at or below 1% in 2023.


The multi-family market made record transactions in 2021. However, with changing interest rates, and brisk movement in 2022, what can we expect of portfolio sales leading into 2023?

Jason: The multi-family sector displays long-term, structural trends that remain firmly in place. After a disruption in rental growth over the COVID period, which was always expected to be temporary, rental growth has resumed as students flocked back to cities, immigration resumed, and home affordability worsened. All of these trends are applicable to the Victoria market, some purchasers are being cautious as interest rates have increased. However, the growth in apartment rents is keeping demand for these assets high especially as we approach the end of the interest rate increase cycle.  


How is affordability affecting the rental and multi-family market across Canada, and what solutions are emerging to correct this?

Paul: It is the issue of affordability that we’d like to talk more about because it is having both a negative and positive effect on the multi-family market. Affordability is currently at its worst than ever before in Canada, with no region spared and Toronto and Vancouver at the top of the list. Even as house prices have fallen, affordability has not improved as interest rates now take a bigger bite of monthly carrying costs. An increasing number of Canadians are being priced out of home ownership, and their only option is to rent. As a result of this, rents have surged.


While this has clearly been beneficial to multi-family NOI, or net operating income, various levels of government have taken note and could implement policies (i.e., taxing institutional owners at a higher rate, vacancy control, vacancy de-control, etc.) which in our opinion would help neither renters or owners.


Environment, Social and Governance (ESG) is dominating the conversation in the business and commercial real-estate world. What aspects are investors looking at specifically when it comes to commercial real-estate, and where are we seeing companies take this movement? How does CBRE play into this?

Paul: While Canada lags in comparison to other countries in relation to ESG-based investing, that is quickly changing. Investors know that without a strong ESG strategy, their ability to raise capital will be impaired, the availability and cost of debt will be impacted, and the pool of potential tenants for their buildings will decrease. Most businesses now view ESG as an opportunity to create value (or at least limit value discounts) rather than simply a cost of doing business. Climate risk is also increasingly changing the long-term appeal of some markets as extreme weather events (wildfires, storms, hurricanes, and flooding) accelerate. 


ESG is not simply a topic, and will soon be a core part of any company’s strategy moving forward. C


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