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| Population 341,000 | ||||
| Employment 191,000 | ||||
| Unemployment Rate 3.3% | ||||
| Retail Sales $4.0 billion | ||||
| Consumer Price Index 2.3% | ||||
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| ←→ | Office | ←→ | ||
| ←→ | Industrial | ←→ | ||
| ←→ | Retail | ←→ | ||
| Overall Cap Rates ↑ |
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| Source: DTZ Barnicke | ||||
| 2007 | 2008e | 2009f | 2010f | |
|---|---|---|---|---|
| Real GDP* | 3.8% | 2.3% | 1.8% | 2.8% |
| Population* | 1.0% | 1.1% | 0.8% | 0.8% |
| Employment* | 4.4% | 4.3% | 0.4% | 0.5% |
| Unemployment Rate | 3.3% | 4.3% | 4.4% | 4.5% |
| Personal Income per Capita | $38,772 | $41,493 | $42,890 | $44,140 |
| Total Housing Starts | 2,600 | 2,180 | 1,810 | 1,830 |
| Retail Sales* | 6.1% | 3.0% | 4.3% | 4.5% |
| CPI* | 1.1% | 2.3% | 2.0% | 1.8% |
| Source: Conference Board Canada | *Percentage Change from Previous Year | |||
Market overview
Victoria’s economy grew at a rate of 2.3% in 2008, a 150 basis point drop from 2007. Despite a decline in the goods sector, increasing demand in the services sector spurred by strong employment and income growth are driving the local economy. Growing domestic demand and investment into the tourism hub is being led by the $1.2 billion Bear Mountain development, the $150 million Uptown Shopping Centre redevelopment, the recently approved $1 billion City Centre Colwood redevelopment, and the LEED Platinum Dockside Green mixed use condominium.
GDP growth in 2009 is forecast to decline further, to 1.8%, before rebounding to an average of 2.4% through 2010 to 2012.
Victoria’s industrial market performed extremely well in 2008 and despite a slight rise, the vacancy remains below 1.0%.
Office
The office market reached record low levels of vacancy in 2008 as the local economy continued to grow and no new office development came to market. An office vacancy rate of 2.3%, down roughly 70 basis points from 2007, was brought on by the absorption in Class B space as Class A options have all but been exhausted with vacancy hovering around 1.0%. Growth in 2008 came from a balance of private and public sector tenancies, with service oriented and knowledge based industries leading the way.
Pent-up demand has resulted in a tremendous amount of pre-leasing activity. In 2009, a total of 192,000 square feet is expected to come to market in the form of four buildings, two of which are LEED Certified. These include SoMA (10,000 square feet), Dockside Green (24,000 square feet), and The Raven Building (18,000 square feet). Expect these buildings to be nearly 100% pre-leased before completion, as existing businesses relocate or consolidate to newer more efficient space and pent-up demand is met. Vacancy rates should rise slightly in 2009 due to the injection of new supply. Despite rising vacancies, average net rental rate will continue to escalate as demand continues to grow and new, higher quality, product hits the market.
Looking further ahead, there are currently three buildings set for completion in 2010 and beyond. These are 800 Yates (180,000 square feet), the commercial tower of the Uptown (Town & Country Shopping Centre) development (80,000 square feet), and Gateway Green (140,000 square feet).
Industrial
Victoria’s industrial market performed extremely well in 2008 and, despite a slight rise, the vacancy remains below 1.0%. While significant new supply was added in 2008, the market witnessed approximately 333,000 square feet of absorption.
The relatively steady vacancy rate is owed to the fact that almost all new construction is built to suit in Victoria. As a result, absorption and vacancy move closely in alignment with the completion of any new supply. 2008 marked the fourth consecutive year in which vacant industrial product was essentially non-existent. Expect this trend to continue in 2009.
2009 will see a slowdown in new developments greater than 20,000 square feet due to a shortage of land and economic uncertainty. This will pose a challenge to the expansion of businesses that require larger spaces at affordable rates.
Rising labour costs, and the limited amount of space in Victoria, pushed net rental rates to the $13 range in 2008. However, expect rental rates to remain stable in 2009 as demand cools slightly.
| Office Inventory | 8.0 million |
| Office Vacancy | 2.3% |
| CBD Class A Vacancy | 1.0% |
| Industrial Inventory | 8.3 million |
| Industrial Vacancy | 0.8% |
| Source: DTZ Barnicke and Conference Board Canada | |
Investment
Investment market activity remained positive for the first three quarters of 2008. Overall interest in all asset classes was very high, with multi-unit residential, prime retail, and office commanding the lowest cap rates, as low as 4% for some multi-unit product. Unlike most real estate investment climates in Canada, industrial and hotel products were also sought after by investors, due to the near zero vacancy rate for industrial space and the highly lucrative tourism industry. Since October 2008, there has been a decline in activity as buyers anticipate price reductions in 2009.
The combination of a diverse economy, limited availability of land and a key geographic location has resulted in an environment where demand far exceeds the supply of product. A low vacancy rate for all asset classes has most owners happy with consistent rent revenue and capital gains. However, credit markets in 2009 may force some selling and cash rich investors will quickly seize the opportunities. Consequently, cap rates are expected to increase 50 basis points in 2009.
Retail
Retail sales growth in 2008 was cut in half to 3.0% due to a decrease in non-Canadian tourism spending. Although the strength of the Canadian dollar hurt tourism in Victoria, a strong economy, lower unemployment rate and a greater income per capita cushioned retail sales domestically.
Big box stores will maintain a near 0% vacancy rate and shopping malls will remain in the 3% range in 2009, despite the arrival of additional inventory in the Uptown development. A rise in vacancy and a decline in rental rates are expected in 2009 for street level retail in the downtown region.
Retailer Urban Planet entered the market in 2008, Best Buy will be complete in 2009, and H&M and Sephora are expected take space in the Uptown Centre redevelopment in 2010. Unfortunately, in August 2008, retailer A&B Sound closed down due to declining music sales and competition brought on by the big box retailers.