Kelowna not keeping up with demand for high-end penthouse condos
The supply of large, high-end, waterfront condos is quickly drying up in Kelowna and likely won’t see much change until the Tolko Industries lands are redeveloped in a few year’s time.
That’s the view of Scott Brown, the CEO of Epic Real Estate Solutions Inc. and the man responsible for marketing the One Water Street towers in Kelowna that include a $10 million penthouse.
The buyers of higher-end condos tend to be people who want to live in Kelowna and want a view of Okanagan Lake and are willing to pay top dollar for that.
“In Kelowna, the downtown projects, generally the inventory is getting smaller and smaller square footage,” Brown said. “It’s going to be rental or investment or first-time buyers. Other than in the Mission, in the Stober project, and what’s left in One Water Street and a little bit at Lakeview, there’s not a lot of that product. You see a little bit of it in each project, maybe 10% of the inventory, but you could probably sell an entire building of that if you were able to take your time to sell it.”
Therein lies the rub.
While there’s a market for the high-end condos, developers are reluctant to build them because they now need to pre-sell 60% of their buildings before they can secure financing, compared to only 35% ten years ago, Brown said.
People paying more than $1 million for a condo (the benchmark price in February was $550,700 for condos in the Central Okanagan) prefer to hold off so they can move in shortly after buying rather than wait two or three years for the towers to be built.
That kind of product was more commonly built when the market was slower in the 2013-16 period and developers could take the time to find the right buyer.
“Now, because people (developers) need to sell faster and get their financing faster and they’re worried about inflation, they’re chasing the smaller units with the lower price points,” Brown said. “They’re not necessarily building for the needs of a more affluent and typically older client.”
Some of those clients are from the Lower Mainland but many are from the Kelowna area as well, those that want to make a “lateral” move, he said.
“The market has gotten so complicated,” Brown said. “It used to be a down-sizer was a simple person. They were over 55. They were probably retiring soon. They wanted to sell their house. They wanted to take half the money from their house and put it in the bank and put the other half into a home. Now, there are people doing this lateral move where they’re saying: ‘I just don’t want to live in this house any more so I’ll sell my house for $1.5 million and I’ll buy something that’s $1.5 million in the condominium market that still gives me enough space to live in.’”
Brown sells in the Victoria market as well where, in the winter, selling four $1 million condos is a good month. Now 20 a month is not unusual.
In Kelowna, by comparison, there are only 15 units left in One Water Street. A couple are penthouses on the upper floors. The rest are smaller suites but still high in the building.
“They’re in that price range of $1 million to 1.5 million, right into this kind of sweet spot to an end user who wants to move in, who wants two bedrooms, wants some extra space for a guest and wants a bigger kitchen and a bigger deck,” Brown said.
As for the $10 million penthouse filling the 36th floor at One Water, an offer has been made but negotiations continue on whether the suite can be built the way the potential buyer wants.
“When you’re dealing with people who are spending millions and millions of dollars and customizing things, it’s a slow process,” Brown said. “It’s quite a bit of back and forth about whether some of the things that people want are even still possible because you can’t tear out cement columns and things like that.”
READ MORE: iN VIDEO: Kelowna's One Water Street penthouse could be yours for $10 million
The penthouse was roughed in with steel studded walls that can be moved but some of the other changes may not be possible.
Supply chain delays are complicated by the need to bring in specialty products from places like Italy so that means it will be some time yet to know if this deal will actually get done.
This kind of multimillion sale is rare in the business.
“It’s a unique buyer,” Brown said. “Usually a unique buyer is heavily motivated by lifestyle and emotion more than: ‘Hey, what am I going to sell this for?’ So not an investor for sure.”
As for other higher-end products in Kelowna, Al Stober Construction has sold out one tower in its Movala project next to Boyce Gyro Park and is marketing its second tower. Called Skywater, it’s closer to the lake and designed more for the higher end market, Brown said.
It could be two to three years before it’s ready for people to move in.
So what’s left on Kelowna’s waterfront suitable for the condo market?
“If you look in the Mission, there’s very limited opportunity because most of the lakefront is occupied by single-family residents with boats that certainly aren’t in a hurry to sell,” Brown said. “I think, probably, the next one that’s on the lake is what’s going to happen with the Tolko site. That’s probably your next great waterfront opportunity in Kelowna.”
READ MORE: iN PHOTOS: Heritage, housing and waterfront fun in future for Kelowna’s Tolko lands
Kelowna city councillors toured the Tolko site last week as part of a planning process that looks at the future of the 40-acre former mill site and the entire North End of downtown Kelowna.
The plan itself won’t be finished until next year. It can take three or more years to build on the land, especially if highrises are part of the plan.
Despite the booming real estate market post-COVID, it appears there's not enough supply of the larger condos to meet the demand, just as there’s not enough supply to meet the demand for a lower priced product.
— This story updated at 8:15 a.m. to correct Scott Brown's title, and to correct the name of the Skywater development.
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