Builders trend toward commercialism
Construction trends swing like a pendulum in Nanaimo.
Building will bow toward residential properties for a few years, then see-saw toward commercial projects for a period.
Commercial construction is on the upswing since 2010 with most new projects filling niches in town rather than pushing new development out to the city’s boundaries and beyond.
“What we’re seeing generally in the last couple of years in Nanaimo is a fairly strong commercial market with single family residential being relatively flat,” said Dale Lindsay, city manager of building inspections.
Lindsay, who has observed the Nanaimo construction market for 18 years, said the situation is not unusual.
“Historically Nanaimo has these pendulum swings where residential’s really hot and commercial’s cool, then commercial heats up and residential slows down,” he said.
The value of commercial property building permits taken out in 2012 topped $46 million, nearly double the figure for 2010 – one of the highest years for annual commercial building permits on record.
Permits for single- and multi-family units still make up the bulk of construction applications, but there have been few big subdivision projects in recent years.
“It’s not like in the early ’90s where you’d have subdivisions with 200 lots,” Lindsay said. “Our subdivisions now are closer to six to 15 lots, but we’re still seeing a lot of growth in south Nanaimo. Certainly we’ve seen a focus on the south end. We’re also seeing a lot of in-fill projects.”
Looking around town, one can’t help but notice plenty of signs advertising commercial space for rent or lease. With so much space already available why build more?
Chris Erb, owner of SupErb Construction and chairman of the Vancouver Island Construction Association, said a big driver of commercial construction is low mortgage interest rates, but developers aren’t just building and hoping for buyers.
“Most is site specific and most of it being built is for somebody,” he said. “There’s no stuff, in my opinion, being built on spec. It’s all owner-built.”
Existing lease space on the other hand remains unattractive because of high commercial property taxes.
“If you look at a bare piece of property and what you’re paying for property taxes per month, it’s obscene,” Erb said.
Erb said his company recently looked at the investment potential of a 930-square metre lease property, but decided property taxes, $3,000 per month, were too high.
“In a lot of these cases when you’re dealing with that, that’s a huge component,” he said.
Erb said changes to the building code for 2013 will add higher costs to new construction and skewed 2012 building permit figures.
“Everyone tried to get a building permit in for December, so they were actually grandfathered in for the old building code,” he said.
The need to stock the market for young, first-time buyers will also drive developers to continue building multi-family dwellings for the foreseeable future.
“In order to get the younger population, you’ve got to get your cost per door down and the way you get your cost per door down is multi’s,” Erb said.
Doug Bromage, president of Insight Development, sees most current construction work in government and infrastructure projects, new and renovation commercial construction and affordable residential. He sees little market enthusiasm for large condominium/commercial projects – Insight’s Seawalk project has been on hold for several years – and homes priced above $450,000.
“As far as major projects, I still don’t seen any reason to be going ahead,” Bromage said. “Inventory is still high, financing is still tough and there’s just not a market. People are just not into spending that kind of money right now.”
He also doesn’t foresee long-term sustainability for continued commercial construction unless Nanaimo gets a fresh influx of population.
“It’s slow and steady, but there’s certainly no urgency for anything here,” he said.
Bromage, like Erb, also said additional construction costs from the new building code – which might add several thousand dollars to the price of a new home – and the return to the provincial sales tax will hinder new construction.
“If you’re in a price sensitive market already, these things keep coming on and on and pretty soon the camel doesn’t get up – there are too many straws,” he said.
One way to make money is to build as close as possible to the most customers.
Canadian Tire is one retailer migrating toward high density populations. The company will open its largest store on the Island in Nanaimo North Town Centre in 2013. Several car dealerships on Bowen Road are renovating extensively, but staying put.
“There are a lot of large format retailers that have seen the north end is fairly well serviced – and there’s starting to be more services in the south end – but in central Nanaimo, there was some opportunities there,” Lindsay said.
Greenrock Industrial Business Park, where a new Country Grocer and TD Bank branch opened in 2012, formed a new commercial node on Bowen Road. The site serves an estimated 30,000 people living within a five-kilometre radius.
Port Place Shopping Centre downtown continues its transformation. The mall’s second phase of construction is underway and the concrete is being poured for a two-storey home for commercial retail outlets.
Pacific Station, built by Westmark Construction, started offering its first units in December. The complex of strata offices for professionals and retailers is expected to eventually form a community business node on Norwell Drive.
“What we’ve discovered during the past year is the majority of investors are looking past the current economic situation in the country and saying, ‘Look, central Vancouver Island has a great future ahead of it and it’s a good time for us to be buying and positioning ourselves in the market’,” said Bob Moss, managing broker for DTZ Nanaimo.
He said a number of significant local land and revenue property sales in 2012 demonstrated investors are confident in the central Island’s future.
“Local companies, of course, are being careful, as they should be. They’re moving ahead cautiously, which means sometimes it takes a while to get a project such as Pacific Station up and running,” Moss said.
He cites the project’s central location, proximity to the Nanaimo Parkway, high population density from the area it’s designed to serve and high visibility from the Island Highway among benefits that will draw buyers.
“I think as we move into spring we’ll see more activity, for sure,” Moss said.