Bright future foreseen for all sectors of Kelowna’s economy: report
As the world emerges from the COVID pandemic and lives through months of high inflation and high interest rates, Kelowna's retail and industrial land is rapidly filling up as the city continues to grow dramatically.
By the end of 2022, Kelowna had the least amount of retail space available that it's had for years with a 1.95% vacancy rate, according to Kelowna based HM Commercial Group’s 2023 annual report.
That means there are 130,632 square feet of vacant retail space in Kelowna out of a total of 6.7 million square feet. Another 168,060 square feet are under construction.
“Increasing interest rates, the cost of land, and high building costs are having a negative impact on new construction, as some developers are putting a pause on their development plans,” the report says. “If this trend continues, it is expected that the vacancy rate will continue to decrease which, in turn, will continue to drive up lease rates.”
Those constraints on the economy in the short term are seen as a temporary blip. The report features a “crystal ball” outlook for 2023 by a handful of local experts who, in general, see a bright future for Kelowna’s growth in the longer term.
“The availability of housing (units per person) in Canada remains one of the lowest in the G7 and, with a period of slower development in 2023, the pent-up housing demand coming out of the anticipated economic slowdown will be even greater,” Kelowna city manager Doug Gilchrist says in the report. “Perhaps this suggests that now is precisely the time to dig deep on land assemblies, planning and project design work.”
The report says there were $264 million worth of single-family building permits issued last year, up from $232.6 million the year before. At the same time, multi-family building permits dropped to $182 million last year from $239.3 million the year before.
“There is a shift of international and domestic investment at all levels to seek out rare geographically accessible regions that offer a unique range of recreational and cultural activities,” Scott Thomson, vice-president of Northland Properties Corp., says in the report. “These work-life balance regions appeal to youthful populations that become the economic engine for future growth. Kelowna possesses this rare offering and is achieving a critical mass that is being recognized well beyond its Western Canadian popularity.”
Northland bills itself as Canada’s largest privately-owned hospitality company in Canada and was founded by Bob Gaglardi.
The company plans to invest more than $500 million in the region from Kelowna to Revelstoke Mountain Resort in the next five to seven years, the report says.
“Kelowna resides in one of the most coveted time zones in the world, just a few hours drive to some of the world’s largest technological hubs,” Thomson wrote. “Competition for educated labour is at an all-time high and employers follow where these people want to live. The rare attributes that Kelowna offers should translate into further high paying employment for the region.”
The depends, to some extent, on the availability of industrial land, which is in short supply in the city. The sector has a vacancy rate 1.07%, the report says. While that’s up slightly from 0.93% in 2021 it’s down from 1.81% in 2020.
Roughly 128,00 square feet of industrial space is vacant out of just over 12 million square feet. Another 266,370 square feet is under construction.
A big factor in the industrial land picture in the future is the fate of the Kelowna Springs Golf Course.
The 106-acre property was bought by the Denciti Group last fall but Kelowna city council is in the middle of a debate that could change its future use designation to recreational rather than industrial.
Kelowna-based development company, Ridge North America, is planning on invest $350 million in the Kelowna area in already planned projects and looking for more, its president Paul Deutsch wrote in the report.
“It may seem strange to be optimistic in today’s business climate, especially with the degree of gloomy predictions on the economic horizon,” he wrote. “These ideas can be misleading in a region such as Kelowna – especially when compared to the rest of the world. As part of an international business with global partners, we are fortunate to see from the perspective of how this region is shining and staying strong during the challenging climate abroad.
“What we often remind our foreign stakeholders of, is the abundance of superlative benefits in the Okanagan. Kelowna’s natural environment, clean air, fresh water and quality of life, coupled with its business/development opportunities, continue to make it a desirable region for investment.”
The Central Okanagan was the fastest growing major metropolitan area in Canada during the 2016-2021 census period at 13.5%.
“What is most interesting about the numbers are the stories that they can tell and the affirmation they provide for what we see occurring in a region,” Jenn Podmore, vice-president for portfolio services for real estate and marketing company Rennie Group, wrote in the report.
“The greatest change in the Kelowna (and Central Okanagan) population over the past five years was not caused by the Boomers. In fact, the population of people over the age of 60 did not shift as dramatically as that of younger age cohorts. The most significant shift in the region has been in the formation of people under the age of 50 years. As an example, there are 7,000 more people between the ages of 30 and 39 years of age and 6,000 more school aged children.”
Those younger newcomers may not be working in industrial plants but, rather, in offices. That’s one category where there is a decent vacancy rate, although that’s a bit deceptive as well.
There is an office vacancy rate of 6.85%, which means there are 287,279 square feet of vacant office space out of a total inventory of almost 4.2 million square feet. That’s largely due to the Landmark 7 tower that opened in October 2022.
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It has 266,639 square feet of space in its 23 storeys, with only 35% leased before opening but with a number of deals pending, the report says.
“The total new space created (mostly Landmark) has had very little time to absorb, however this will occur throughout 2023,” the report says.
The tower offers “shell spaces,” meaning the tenants have to put the finishing touches to their units, often with the result that they’re vacating already finished spaces.
“This effect is appreciated by tenants who are becoming more hesitant to invest substantial capital into shell spaces and, instead, are seeking turn-key office space as available options are relatively limited and difficult to find,” the report says.
There is another 170,910 square feet of new office space under construction.
The Block, part of the Mission Group’s three-tower Bernard Block project in downtown Kelowna, is under construction with more than 110,000 square feet in 10 storeys of the 16-storey tower.
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As the COVID work-from-home trend eases and workers return to offices, those spaces have evolved.
“Transitioning back to a more office focused workplace aids companies in creating a more cohesive and social team, while still allowing for quieter, more focused workspaces,” the HM Commercial report says. “Where, traditionally, only 20% of office space was for collaborative areas, it is now trending closer to 40%. The use of flexible furnishings (acoustic booths for phone/zoom meetings, demountable wall systems, etc.) is done so companies can flex, react to change and take the furnishings with them when they move.”
Luke Turri, executive vice-president of the Mission Group that is building the Bernard Block towers and other major projects in the city, sees a bright future for the company and the city.
“Our long-term outlook of the Okanagan continues to be as strong as ever,” he wrote in the report. “Our region has matured during this last cycle, emerging into the national spotlight. The pandemic only accelerated this trend. We are blessed with some fantastic advantages that position the Okanagan as a premier mid-sized destination.
“We must hold a long-term view as an industry, as it’s the only approach that creates lasting value and advances the prosperity of our communities. It seems inevitable that there will continue to be strong housing demand in our region for decades ahead. We see purpose-built rental apartments in particular as a key pillar of the housing spectrum.”
The HM Commercial report can be seen in full here. HM is licenced by Macdonald Realty Interior.
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