Citified's Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria's top real-estate and business professionals.
Ten on the Tenth's February, 2023 segment features Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE
. Ross, who normally interview's our Ten on the 10th features, has the role reversed this months and speaks to his career as a commercial real-estate broker, what he believes is in-store for Victoria's real-estate market in 2023, and offers advice on success in the industry.
Asking the questions this month is Mike Kozakowski, the founder of Citified.
For those who may not already be aware of your organization, tell us about CBRE, and your Victoria Investment Properties Group.
CBRE is a Fortune 500 and S&P 500 company and the largest commercial real-estate services and investment firm in the world. In Canada, CBRE employs over 2,200 people in 22 locations from coast to coast (Victoria to Halifax). Our Victoria office specializes in sales and leasing of commercial properties and development land in Greater Victoria and our clients benefit from the industry’s most powerful knowledge base to meet their real estate needs. Together with my partner Chris Rust, we lead the Investment Properties Group to assist our clients with specialized expertise in commercial, multi-family and development property sales.
What should investors, large and small, know about investing in the Victoria real estate market, and how can CBRE assist them?
What occurs more often than some people realize, is the tendency for commercial and development properties to trade off-market without going on MLS, having signage installed on the property, or wide- scale marketing. Although some property listings are marketed far and wide across our local, regional, and national platforms, to maximize exposure to the market, some vendors prefer we take a more targeted approach to sell their property to a small group of very qualified purchasers to keep their business affairs confidential.
Chris and I leverage our network and relationships with qualified investors and developers from across Canada and abroad, while collaborating with CBRE agents in other offices from coast to coast in order to maximize exposure for each listing. We develop a customized and professional marketing strategy while providing best-in-class service and results for our clients. For those investors looking to acquire properties in Greater Victoria and the Island, we also act as buyer agents to source off-market properties by leveraging our thorough knowledge of the inventory and their owners, and opportunities which may exist in the Greater Victoria marketplace.
What challenges do you foresee for the Victoria commercial real estate and investment markets in 2023? And what about the opportunities?
The local market is experiencing economic issues realized across the country and globe, forcing many investors to hit pause due primarily to elevated borrowing costs causing broader market uncertainty. That being said, well capitalized investors and builder-developers are predicting opportunistic transactions over the next couple quarters as sellers needing to divest of assets are faced with a smaller pool of eligible buyers and rising holding costs. Having cash reserves for asset purchases avoids high- leverage loans, and that is an important differentiator in today’s market.
Fundamentally, Victoria remains a strong market, with strategic long-term relevance for Canadian investors and international organizations looking for safe places to invest their capital. And given the population growth we have seen, together with the population projections presented by Statistics Canada, the future for the market in Greater Victoria remains bright as demand for housing continues to far exceed housing supply.
On that note, can you elaborate on the lack of housing inventory which has led to a dramatic supply demand imbalance, with specific reference to the rental market in Greater Victoria?
There is no doubt that both multifamily apartment buildings and development land have been very highly sought after by our clients for the last several years while demand for rental housing continues to outpace supply. The escalating cost of home ownership, driven by lack of suitable inventory and exceptional immigration is driving more of the population into the rental housing category. Within the Greater Victoria context, rental housing construction stalled between the 1980s and early 2000s with only a partial correction to new rental supply in the mid 2000s which created an almost 40-year deficit of rental housing supply. This period has led to prolonged low vacancy rates and the historically low vacancy rates we are currently seeing along with escalating affordability challenges for renters.
Correcting the supply-demand imbalance is the best way to restore affordability; we need to build more rental units across all price points! Demand, for both homeownership and rental is so exceptionally high and there is no supply response, so we need to take urgent action to address the issues. Prolonged timelines for development approvals and development charges and fees which both drive up costs (and ultimately rent rates) must be addressed. Recent interest rate increases which bring higher costs for borrowed capital coupled with higher construction costs have changed the break even point for new projects, whether condo or rental.
Consequently, there is the potential for our rental market to get even worse before it gets better. Most developers that we are speaking with have mentioned that the economics for purpose built rental developments no longer make sense and they may be forced to build condos to sell rather than building purpose built rental on the sites they have purchased or are contemplating purchasing to develop. Not only do condo units have approximately 35% higher value than rental units, but parking for a rental building is retained and not sold, therefore there isn't any payback on the investment as parking is a necessary amenity to enable leasing of the suites.
Furthermore, there are no condo fees charged to tenants (unlike strata condo owners) therefore all common area expenses are absorbed by the developer. Purpose-built rentals work off a very thin margin and developers can't afford a delay at the municipal level further increasing their overall (holding) costs. In summary, market rents are rarely sufficient to cover the development and construction costs of rental projects and there are significant cost items for rental which hinder financial performance. Therefore, there is very little affordable or market rental housing taking place. Unfortunately, developers may be forced to build condos rather than developing purpose-built rentals which are desperately needed to add to the drastically inadequate rental supply in downtown Victoria.
Why is it more important than ever to work with a commercial real-estate professional who has the experience and expertise to navigate a challenging market?
In a turbulent market, knowledge is power. CBRE offers our clients robust buyer intelligence resulting from our billions of dollars of transaction volume and unrivalled experience in the Greater Victoria marketplace. We have extensive market knowledge, and our clients benefit from having access to our Investment Properties Group's breadth of transaction and sales data in order to make informed decisions whether the are considering buying or selling.
Your team has nearly doubled in size over the past year (unlike many businesses which are scaling back their office needs), and you'll soon be moving into a new office location. What's behind your success?
Our new and loyal clients have fueled our need for expansion so that we can continue to provide best- in-class service in Victoria. We value and nurture our client relationships, and our market share has soared over the past decade as a result of our track record and real-estate experience and expertise. Additionally, the CBRE regional, national, and international network drives deal volume which requires a team of dedicated professionals to service the needs of corporate mandates and referral business in Victoria.
What are you aiming to achieve by growing your operation? How will this strengthen your market position, and what are you able to offer to clients?
Our growth has been calculated and methodical. We were careful to add the right professionals to our team that would complement the highly qualified team members that already exist. While our Investment Properties Group focuses solely on sales with billions of dollars in transaction volume over the few years alone, we have grown our Leasing Advisory Services Group to facilitate office, retail and industrial lease listings and mandates in order provide our clients with a full-service platform to suit all of their commercial real estate needs.
CBRE Victoria is part of a network and platform that spans the globe. How does this make you uniquely positioned locally, to source opportunities and connect investors with a diverse range of deals?
Our clients benefit from the horsepower of a global real-estate firm with boutique, VIP service within the Victoria marketplace. We are able to punch above our weight, so to speak, helping local investors to expand their scope beyond the Victoria and provincial markets by connecting them with our counterparts in markets around the world.
Likewise, global investors can learn about opportunities in Victoria and on Vancouver Island through our global network and our peers can ensure investors are connected with our Investment Properties Group in Victoria in a seamless manner so they can be among the first movers on deals in our market.
Can you tell us more about your approach to building your business over the years? Are there recommendations you'd make to young business people, about how to stand out?
I have spent the past 20 years building my business and our Investment Properties Group and have done so with a growth mindset, and a belief that discipline, hard work and resilience our the keys to success in business and life. I'm a 4AM riser and workout daily based on a healthy body, healthy mind mentality. While I work out, I often listen to audio books and podcasts, primarily self development material or biographies of successful people (both athletes and businesspeople). I constantly study success and what successful people do. Work and life is a series of sprints within a marathon, usually with no finish line in sight. If I were to offer advice to young professionals, I would urge them to set goals, measure their progress, and to remain patient. That said, there is no substitute for hard work, so be the hardest worker in the room.
Currently in vogue is the work-from-home model. Unfortunately, this can be a negative for young people starting their careers or working to advance their careers. My advice would be to work out of the office as often as possible. There is so much growth, learning and collaboration that we all benefit from in an office environment, whether its listening to leaders in the office and watching them conduct their affairs, or even learning through osmosis by being in an environment where your co-workers are advancing and providing their younger counterparts with invaluable knowledge and wisdom. To the people coming up in this industry or others, I encourage you to listen, learn and absorb from the experts and team members around you, so you can eventually become an expert yourself.
Your corporate bio mentions coaching your sons in sports. How has being a parent and a coach impacted your personal and professional life?
My wife and three boys are the best thing that has ever happened to me. They keep me young, both in body and spirit! I love to compete, and I love winning and there are so many similarities between sport and business. Kids these days need sport (now more than ever after the COVID lull).
Kids need to learn that it takes effort and commitment to win. They need to learn how to get back up, and dust themselves off when they lose and do so with grace and dignity. And at its core, winning is about improving, growing, challenging yourself, and these days more than ever, kids need more encouragement to get out there and be the best they can be both in life and sport.
Speaking of sports, how about a bonus question? I know you have a stake in the Canadian Premier League (soccer league). Can you tell us about this involvement with professional sports?
Yes, I’m an owner/investor in the local Pacific FC professional soccer club! It was a unique opportunity to invest in the game I love, while indirectly giving back to my community by bringing a team to the Island. Pacific FC and the CPL provides high level entertainment and professional soccer for Victorians and Canadians across the country. Furthermore, its what the club does for the community off the pitch such as Pride events, involvement with various First Nations, player visits to community events and schools and the youth development programs (Trident and Wave) all of which are wholesome, great initiatives that I have always wanted to be part of in a more meaningful way.
It's been wonderful to be a part of the success of the league and Pacific FC, a professional sports club us Victorians can call our own! The excitement and momentum of the team and the sport in general is infectious, especially with the World Cup coming to Canada and North America, and we're just getting started! C
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