Vancouver Island has seen more activity this year as property markets eke back to life across the continent.
Just across the Strait of Georgia from Vancouver, the island is well known for its seaside communities and laid-back lifestyle, particularly for retirees. It has a different market for multifamily than larger urban centres such as Vancouver.
Green Street News spoke with Greg Ambrose, vice president at CBRE who specializes in apartment-building sales across Metro Vancouver and Vancouver Island, about what trading on the island looked like last year and where it is likely to head in 2025.
Vancouver Island’s market has been hopping in the last year. To what do you attribute the activity?
Our team has been actively selling apartment buildings in Victoria and on Vancouver Island for at least a decade now, and the market continues to attract investors who see good value supported by strong fundamentals. Canadian multifamily is one of the tightest property sectors in North America, and many of the municipalities on Vancouver Island, like Metro Vancouver, are characterized by a growing housing undersupply, ownership cost challenges and record population growth leading to near-zero vacancy levels and rapid market rent growth.
Sales over the last two years have been down slightly compared to previous years, but this isn’t surprising given the interest-rate environment we just went through.
“Nanaimo is the second-largest urban centre on Vancouver Island and has consistently been one of the fastest-growing regions in Canada, and shows no sign of slowing down”
Looking at Victoria, you have a rental market supported by several sectors including the government sector, the university and colleges, the Canada Forces Base at Esquimalt, as well as construction, healthcare, retail and tourism.
Nanaimo is the second-largest urban centre on Vancouver Island and has consistently been one of the fastest-growing regions in Canada, and shows no sign of slowing down. Figures from a BC Stats report suggest that Nanaimo’s population could increase more than 50% by 2046. The Nanaimo rental market is supported by a well-trained and educated workforce – Vancouver Island University – and is the transportation gateway for Vancouver Island with the Port of Nanaimo, which is being expanded to increase capacity that will create new job opportunities and continue to improve economic prosperity for the region.
What are the assets you see moving the most?
The buildings that sold this year typically had revenue that supported yields in line with the cost of debt. Lower-capitalization-rate deals are much more difficult to make sense of in the current interest-rate environment, but in some instances, nonprofit housing societies utilizing grants from the rental protection fund ended up being the end buyer for these assets.
We saw both private and institution investors active in the market, and in some instances there were some good opportunities. For instance, the Garden Park Court in Victoria, a large, 106-unit complex on almost four acres, sold for under $200,000 per door at over a 5% cap rate to an institutional group. The Magnolia Townhomes, in Nanaimo, is another example. It was a newer 36-unit rental townhome complex that our team sold, and it traded a little under a 5% cap rate to a private investor from the mainland.
Why do you think these assets are gaining the most interest?
Multifamily-investment activity has been a little muted over the last two years due to the rapid increase in interest rates, creating pent-up capital. Now that rates have started to come down, more deals are starting to look attractive, and some investors saw opportunities in the marketplace and moved quickly.
Of those, what generally is the most attractive asset for investors?
Different investors have different criteria and are attracted to different deal metrics. There are investors who will overlook lower yields if they feel they are getting good value on the per-door or per-foot metric, while others may be more IRR-driven. That is what makes the market and what we do interesting. But at the end of the day, the deal metrics have to make sense, and investing in negative leverage deals – yield that is less than cost of debt – without the right strategy typically doesn’t make sense.
Where are those investors coming from?
Most of the private investors on Vancouver Island typically are based out of the Lower Mainland, while most of the institutional investors are headquartered in Toronto.
What are some of the more challenging aspects of the market there compared to other markets?
I think some investors are still not familiar with Vancouver Island, and some parts of Vancouver Island may still hold negative connotations – no different to maybe East Vancouver or Esquimalt did 15 to 20 years ago, but looking at those markets today relatively, they support some of the strongest rents.
What were some of your better deals and listings for the year?
We currently have two listings in Nanaimo that warrant attention. The Trinity Apartments, which is located walking distance from Vancouver Island University, is a well-maintained, 70-suite apartment complex on 1.35 acres with a suite mix comprised mainly of studio units. University students and young professionals typically only stay in studios for a year or two, so the advantage of this is a healthy turnover allowing the owner to keep moving rents to market. It is a very simple, low-maintenance building design, doesn’t require a lot of equity and offers a very competitive cap rate.
The Woodgrove Pines Apartments is another great opportunity. It is institutionally owned and managed and offers great scale, with 137 units on a large, 5.2-acre site. The property is in North Nanaimo, adjacent to all amenities. It offers an excellent suite mix comprised of 65% large, two-bedroom units, a third of which have been renovated, providing a proven value-add strategy to continue growing the cashflow and yield.
How do you imagine 2025 shaping up on the Island?
2025 could shape up to be a good year for multifamily activity on the island. Investment activity has been somewhat muted for the past 24 months with the rapid runup in interest rates creating a lot of pent-up capital. Now that rates are coming down, that capital is seeking yield and moving back into the market. Given the secure and defensive nature of multifamily-investment properties and the strong fundamentals on Vancouver Island, I suspect 2025 to be an active year for deals that make sense.
