That’s nearly a 10% increase over cruise-ship passenger arrivals in 2022, according to Destination Vancouver.
The continued resurgence of the cruise ship industry might be one of the surprises of 2023. Recall, in Spring 2020, during the early stages of the COVID-19 pandemic, thousands of cruise ship passengers remained stuck at sea on cruise-liners that were refused entry to port due to the emergency. For days and weeks, distressed passengers remained trapped on these floating quarantines.
It was hard to imagine then that the cruise ship business, along with the commercial property benefits the cruise ship traffic delivered for coastal cities like Vancouver, would ever recover from that trauma.
But it did.
Overall tourism to Vancouver is rebounding and hotels are full — and once again charging an arm and a leg for a limited number of rooms. There is still room for growth. In September, Destination Vancouver said visitation to the city is climbing back up, and by fall of this year, was only about 10% lower than 2019 pre-pandemic levels.
As we reflect on the past year, there were several surprises that emerged in Canada's commercial property market. Did anyone expect interest rates to continue rising as quickly and steeply as they did?
Here are four other surprises within the commercial real estate industry (CRE) from 2023 shared by a group of Colliers professionals from around the country.
Calgary on the path to downtown transformation
It comes as no surprise that Calgary continues to face elevated office vacancy, but the most notable trend this past year for Justin Mayerchak, an executive vice president with Colliers in Calgary, is that office demand has stabilized, particularly for higher quality properties. Moreover, efforts moved forward in earnest to convert outdated office space into residential use, bringing much-needed diversification and housing options to the inner-city market.
"Although much has been done to diversify our economy over the past five or so years, the backbone is still energy, which is doing quite well," Mayerchak says. "Therefore, our market, although still around 25% vacant overall, has seen good absorption, largely in the AA & A segments. I think we're headed towards a bifurcated market, where well located, quality properties with strong amenities see solid demand, while lower-class buildings in lesser locations sit idle and are forced to compete primarily on price."
Calgary has become the national leader for adaptive reuse, Mayerchak says. "Because our economy was so affected by an energy downturn long before the pandemic, we've had much longer to think about strategies and conversion opportunities, and to produce change for our downtown and beltline communities.”
Through a city-led financial incentive program, there are currently 17 office buildings in Calgary slated to be converted into a total of 2.3 million square feet of housing space.
In-office privacy demands make a comeback
For Amy Vuong, vice president of strategy at Colliers Real Estate Management Services, based in Toronto, new Colliers research this year revealed an interesting result as hybrid work solidified and companies began to cement their office-work policies after years of uncertainty.
"The most surprising finding was just how important it is to provide privacy and space options for focus work in the office," Vuong says. "Employees with open-plan desks came into the office 12 hours less than those in private offices — and workers also found it much more preferable to work on heads-down, focus tasks at home, rather than in the office."
Vuong says these findings highlight the need for more flexibility in the types of work areas available within office spaces and building amenities, to make in-office days more productive and attractive to workers.
New blockers emerge despite national housing crisis
Perhaps nowhere is the country's housing crisis more acute than in Metro Vancouver where the average asking rent for a single-bedroom home ballooned to $2,872.00 this year, according to Rentals.ca
Despite these pricing challenges, and a slower multifamily development market dragged down by elevated interest rates and fewer land transactions, Metro Vancouver decided in October to increase development cost charges (DCCs) on new projects, underscores Jaraad Marani, vice president, development advisory, based in Vancouver. The change will triple the fees imposed on construction.
"That flies in the face of federal and provincial pressure to respond to the housing crisis and represents a big step in the wrong direction," Marani says.
CRE market experiences fewer distress sales than you might expect
"With interest rates rising the fastest we’ve seen in Canada in over 30 years in 2022-2023 and several headwinds still affecting the economy, I would have expected to see a steady increase in the number of distress sales coming to market this year," says Susan Thompson, Colliers Canada associate director of research. "However, there have been relatively few so far."
Thompson says companies have been finding solutions in negotiating with existing partners and bringing on financial partners with cash to invest to avoid costly increases to debt repayments.
"We are still early in the distress cycle," she adds. "Given an environment of continuing rising expenses, including borrowing costs, and narrowing profit margins, I would anticipate at some point soon, there will be more distress sales, as mortgages continue to mature and investors can’t make the financials on a deal pencil out any longer."