British Columbia investment review

01. Financing obstacles persist

Financing remained a significant challenge for buyers in the first half of 2024, as most major banks showed little flexibility in lending to new borrowers, even if they were well-qualified. This contributed to a slowing down in sales activity in the beginning of the year.
High vacancy rates in the office sector are significantly impacting net operating income, prompting many landlords to invest in improving their existing properties rather than acquiring new ones.

However, for buyers with available capital, there are still attractive opportunities, particularly with the rise in distressed sales of development lands.
 

02. Interest rate drop showing renewed signs of optimism

On June 5, the Bank of Canada (BoC) became the first central bank among the G7 nations to lower its policy rates in 2024. As anticipated by the market, the BoC followed up with a second 25-basis-point cut on July 24 and another on September 4, bringing the overnight rate to 4.25%. These rate reductions aligned with inflation falling to 2.5% in July, just 50 basis points away from the BoC’s 2% target.

Following the U.S. Federal Reserve's larger-than-expected 0.5% rate drop in September, Canada may see similarly aggressive cuts before the end of the year, with two more interest rate announcements scheduled for October and December.
 

03. Capital gains tax changes spur numerous sales

On June 25, 2024, the federal government introduced changes to capital gains taxation. The capital gains inclusion rate was raised from 50% to 66.67% for gains exceeding $250,000 per year for individuals, and on all capital gains for corporations and most types of trusts.

As a result, many owners took actionand decided to reorganize or adjust their assets before the June 25 deadline. This led to a significant spike in closings during Q2, with Q1 sales accounting for only 27.5% of the total transaction volume in the first half of the year. In June alone, transactions over $5 million made up 37.7% of all H1 sales.

 

Total commercial real estate sale volume during H1 2024: $5.3B