Some developers are stuck holding sites that no longer make economic sense to redevelop in current market conditions, claims one Vancouver broker.
The market for development sites is being tested by a roughly 50-per-cent drop in value since 2022, according to Mark Goodman.
The principal of Goodman Commercial Inc. said Broadway Plan sites, for example, were selling for about $200 per square foot buildable three years ago. Sellers can now expect closer to $100 per square foot buildable, he told BIV.
Goodman currently has three Broadway Plan listings.
He said the city is experiencing “growing pains” and adjusting to a new environment where land is being perceived differently.
“The value proposition of buying and developing land is nowhere near what it used to be. There’s been a massive reset in the industry and it’s causing a ripple effect,” he said.
This “seismic shift” is causing headaches for developers who were on the verge of building, Goodman said.
It’s a situation he said that’s left developers guessing whether to sell or continue servicing their mortgage until the market recovers.
“Is the market going to change in six months, or six years? Meanwhile, you’re kind of guessing, do you take your loss now or do you just try to withstand this market?” he said.
“It’s a very precarious position for developers right now.”
So-called development sites can either be empty lots or have existing apartments on the land. They are referred to as such if their highest and best use is redevelopment. It’s not always clear whether a buyer is planning immediate redevelopment versus rent collection, Goodman said.
Current conditions are causing some sites to fall out of the category, “because the highest and best use is now back to the existing improvement, the existing building,” he said.
As preferences shift toward revenue-generating properties, buyers are taking a more pragmatic approach to buying land, making what Goodman called “covered land plays.”
“They can hold the property and make a decent yield while they wait,” he said.
Goodman is currently marketing 19 development sites in the region. With sentiment down and offers coming in low, he said the outlook is further clouded by high taxes, unemployment, project delays, tariffs on construction inputs and fewer international students.
“While there is a little bit more supply, I think the real reason is that people simply cannot afford these rents anymore,” he said, adding this is forcing developers to revise their projections downward.
“The economy is suffering right now.”
