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Capital spending in B.C. rises on strong commercial real estate values

Despite few buying opportunities in Vancouver and elsewhere, B.C. was the top destination for hotel investors in Western Canada in 2018, according to Colliers International.
The brokerage’s annual hotel report notes that 35 hotels with a total of 2,497 rooms changed hands in B.C. last year. The deals represented $337 million worth of investment, or an average of $134,961 a room. This compared with 42 deals in Ontario worth $612 million, or $137,466 a room.The recent CBRE Ltd. report on the sector focused on hotel operations, but Colliers focuses on investment trends. Both reports point to a market strengthening through limited new construction, however.
While downtown Toronto’s hotel market has seen values rise 11.1 per cent over the past decade, downtown Vancouver has seen values increase 10.9 per cent. This year, Colliers forecasts downtown Vancouver hotel values to rise 12.4 per cent, following 18.7 per cent growth last year.
“Scarce supply and surging underlying real estate values continued to drive significant hotel value growth,” Colliers reported.
Airport markets in both Toronto and Vancouver are also seeing values increase, with the growth in value of properties near Pearson International Airport expected to rise 12.8 per cent this year, outpacing that of even the constrained downtown Vancouver market.
Hospitality investment trends
Statistics Canada’s annual survey of investment intentions isn’t always correct, but it’s always worth a glance to see what expectations are for the year ahead. Given the lack of hotel construction in Vancouver and the city’s strong investment market, what is the outlook for new capital spending in the hotel and restaurant industry looking like in 2019?
According to Statistics Canada, B.C. will be second to Manitoba in terms of growth in hospitality investment this year. B.C. accommodation and food service operators will boost capital spending six per cent this year to $680 million, up $38.7 million from last year. While spending will jump 25 per cent in Manitoba, it will be off a lower base, resulting in total investment this year of just $134.6 million.
Construction expenses will drive the spending. B.C. hotel and restaurant operators expect to invest $452.8 million in their properties in 2019, up 13 per cent from last year. New Brunswick and Manitoba will see larger jumps, but the value of new construction in the two provinces will total $150.3 million – a mere third of the tally in B.C.
Construction-sector investments, meanwhile, are set to rise two per cent to $918 million in 2019. The increase in B.C. is consistent with what Statistics Canada is forecasting for the rest of the country.
Major projects boost
A glance at the province’s major projects inventory for 2018 underscores the hot nature of the construction sector.
The inventory tracks projects greater than $20 million in Metro Vancouver, and those worth $15 million and up in the rest of the province. The close of 2018 saw a total of 944 active projects worth nearly $411 billion tracked by the quarterly report.
The final quarter of 2018 saw a giant leap in projects under construction as the LNG Canada project in Kitimat kicked off. Together with more than 30 other projects, many of them residential, the inventory saw nearly $44 billion worth of projects get started in the last three months of 2018.
While this cut the value of proposed projects to $260 million – the lowest since June 2014 – the number of projects proposed rose to 532, the highest since June 2012. Meanwhile, the number of projects on hold dipped to 56 – the lowest level since the start of 2011.
The numbers point to a consistent flow of investment in B.C., even as a tight labour market and material costs – not to mention shifts in provincial policies – continue to push final project expenses higher.