Secondary markets have been in focus over the past year thanks to high cap rates that have made more sense in the current financing environment. While interest rates are starting to come down, heralding a compression in rates, the shift will take time to work through the market. Meanwhile, an influx of people and businesses to secondary markets continues as high real estate costs send both investors and tenants looking for more affordable opportunities.
While there are plenty of towns that could qualify as prime secondary markets—the Southern Okanagan among them—the major moves are happening in hub cities on the fringes of major metropolitan areas. In B.C., this includes Nanaimo and Chilliwack, satellites to Vancouver.
In the Prairies, Calgary is the destination of choice for the influx of migration to Alberta and that’s driving investment in surrounding communities. The strong growth prospects for Alberta mean the opportunities have room to run.
But investment, while often framed in terms of residential properties, is also returning to commercial and industrial assets. Lethbridge is a case in point, but further east, Saskatoon and Winnipeg are reaping significant benefits from industrial investments. Residential markets north of Saskatoon are expanding in step with BHP Billiton’s plans for the world’s largest potash mine at Jansen, while CentrePort Canada is seeing renewed investment from industrial players in the Rural Municipality of Rosser thanks to its strategic location and transportation connections.
While many of these centres have been top towns in the past, the current combination of falling interest rates and normalizing conditions for business activity position them well for growth.
Nanaimo
Proximity to Vancouver has long made Nanaimo a favoured destination for value-minded buyers. While significant investment in civic infrastructure downtown has created hassles for residents over the past couple of years, the improvements prime the city for long-term growth driven both by students at Vancouver Island University and new commercial development such as Seacliff Properties’ massive Sandstone development north of downtown projected to have 2,200 residential units and up to three million square feet of industrial space.
Being a strategically located secondary market, Nanaimo has been a popular destination for multi-family investors as well as retail landlords. This year saw four multi-family properties in the city trade during the first six months, one more than in all of 2023, with three additional offerings in WestUrban’s portfolio coming to market in the second half of the year. Marcus & Millichap sold Metral Station, a fully leased retail centre anchored by Starbucks, Trail Appliances and Browns Social House that sold in September following multiple offers for the full asking price of nearly $15.9 million. “Originally owned by a Vancouver-based investor, it was ultimately purchased by a buyer from the B.C. Interior, highlighting the diverse interest from various buyer groups across British Columbia,” Marcus & Millichap reported.
Despite the consistently high level of attention Nanaimo receives, just 21 per cent of local residential properties are investor-owned, below the B.C. average of nearly 23 per cent. This points to ongoing opportunities for the foreseeable future as the city’s growth continues.
Chilliwack
Chilliwack leapt into the spotlight as housing affordability in Vancouver slipped further out of reach a decade ago, and the pandemic sharpened the focus of residential buyers on what’s become a city experiencing a transformation. Similar to Nanaimo, the city has yet to see investors dominate local residential transactions, but that’s partly because plenty of other opportunities exist as population growth puts the city on track for a 40 per cent gain to 132,000 by 2035.
“Chilliwack’s convenient access to major transportation routes and proximity to the U.S. border allow investors to easily monitor their assets,” Marcus & Millichap notes. “Coupled with a steady influx of residents and ongoing community development initiatives, Chilliwack is a vibrant market for investment.” Recent developments include Red Bull’s purchase of land for a new manufacturing plant on the heels of major investments by Molson Coors and Trouw Nutrition that highlight the city’s industrial and agricultural base. Development north of Highway 1 at Lickman Road further point to the city’s transformation as developers look to the eastern Fraser Valley for opportunities. With the prospect of new recreational amenities in the form of ski area backed by Indigenous partners, the city has the makings of an affordable community where people can live, work and play.
Edmonton
Calgary has made headlines as Alberta’s population has boomed over the past two years, thanks largely to an influx of new residents from eastern Canada. The number of new arrivals to Alberta has outstripped the ability of the economy to absorb them, with a knock-on impact on multi-family properties.
But the sleeper opportunity in the province has been Edmonton, which has also seen an influx of new residents and fresh investment in new multi-family housing. Recent trades, such as Killarney Manor, a 56-year-old building that sold in May for $91,429 per suite (a fraction of the cost of assets in larger centres), underscore the interest and upside potential of assets in key neighbourhoods. Within Greater Edmonton, Marcus & Millichap flags Spruce Grove, west of the Acheson with its major industrial spaces providing well-paying jobs, among the key markets for investors thanks to competitive pricing and ongoing development initiatives. Re/Max similarly points to St. Albert for its livability, making these areas key for investors looking to be in the path of future demand.
Saskatoon
Re/Max flags four Saskatoon neighbourhoods as attractive thanks to family-oriented pricing and proximity to schools: Brighton, Nutana, Silverspring, and River Heights. But the city’s advantages go beyond single-family opportunities to multi-family, with the Heritage Heights development achieving record pricing earlier this year of $231,855 per unit. However, with work on BHP Billiton’s potash mine ramping up, downtown office space offers opportunities for entrepreneurs to reinvent jobs space in tandem with plans for the reinvention of the city’s downtown core as an event and entertainment district. Meanwhile, land on the outskirts of the city offers residential and agricultural opportunities. Saskatchewan farmland has seen strong growth in pricing this year, and demand for well-located residential and industrial assets has made land a grassroots opportunity as the province rides a commodity-drive wave.
Rosser
Recent investments in CentrePort Canada properties within Rosser underscore the area’s popularity among industrial investors. Statistics Canada points out that the municipality is also popular with residential investors, with more than double the rate of investor-owned properties here than within Winnipeg proper. While the rate of 37 per cent (versus 16 per cent in Winnipeg) is off a low base, Rosser is a magnet for investors who see potential in a development-friendly community. The major projects in turn have spin-off benefits on surrounding neighbourhoods within Winnipeg itself, a city ripe for reinvestment as recent plays in the city’s downtown make clear. With a central location in Canada on a key north-south trade route, Rosser is emblematic of the opportunities within the Winnipeg metropolitan area.
